Metzler paradox

In economics, the Metzler paradox (named after the American economist Lloyd Metzler) is the theoretical possibility that the imposition of a tariff on imports may reduce the relative internal price of that good.[1] It was proposed by Lloyd Metzler in 1949 upon examination of tariffs within the Heckscher–Ohlin model.[2] The paradox has roughly the same status as immiserizing growth and a transfer that makes the recipient worse off.[3]

This peculiar outcome could occur if the offer curve of the exporting country is highly inelastic. In such a scenario, the tariff reduces the duty-free cost of the imported goods to such an extent that the effect of improving the terms of trade of the tariff-imposing countries on relative prices outweighs the impact of the tariff. Such a tariff would not effectively protect the industry competing with the imported goods.

However, in practice, this scenario is deemed unlikely.[4][5]

  1. ^ Casas, François R.; Choi, Eun K. (1985). "The Metzler Paradox and the Non-equivalence of Tariffs and Quotas: Further Results". Journal of Economic Studies. 12 (5): 53–57. doi:10.1108/eb002612.
  2. ^ Metzler, Lloyd A. (1949). "Tariffs, the Terms of Trade, and the Distribution of National Income". Journal of Political Economy. 57 (1): 1–29. doi:10.1086/256766. S2CID 153833656.
  3. ^ Krugman and Obstfeld (2003), p. 112
  4. ^ de Haan, Werner A.; Visser, Patrice (December 1979). "A note on tariffs, quotas, and the Metzler Paradox: An alternative approach". Weltwirtschaftliches Archiv. 115 (4): 736–741. doi:10.1007/bf02696743. S2CID 153602151.
  5. ^ Krugman and Obstfeld (2003), p. 113