Introduction 1 (6) Three Stages of Thought 2 (2) The Scope of the Book 4 (2) Readers' Guide 6 (1) The Theory of Domestic Divergences 7 (26) A Simple Model: Marginal Divergence and the Optimum Subsidy 7 (2) By-product Distortion Effect of Tariff 9 (2) Elaborations of the Simple Analysis 11 (3) The Second-best Optimum Tariff 14 (1) Marginal Divergence in Factor Cost 15 (2) General Equilibrium and Many Commodities 17 (1) Home-market Bias 18 (3) The Hierarchy of Policies 21 (2) Trade Divergences 23 (10) Appendix 2.1: The Theory of Domestic Divergences in Two-product Geometry 26 (6) Appendix 2.2: The Theory of Domestic Divergences: Notes on the Literature 32 (1) The Four Assumptions of the Theory of Domestic Divergences 33 (12) By-product Distortion Costs of Revenue-raising: Subsidies Remain First-best 34 (1) Collection Costs 35 (1) By-product Costs of Revenue-raising: The Need for Trading-off 36 (1) Subsidy Disbursement Costs 37 (2) Income Distribution Effects and the Theory of Domestic Divergences 39 (1) Income Redistribution Not Costless 40 (2) Illusions and an Imperfect World 42 (3) Trade Taxes as Sources of Government Revenue 45 (16) Some Simple Principles of Optimum Taxation 46 (3) The Importance of Collection Costs 49 (2) Smuggling and Underinvoicing 51 (2) The Optimum Tariff Structure: The Marginal Cost of Raising Revenue 53 (4) Export Taxes 57 (1) The Declining Importance of Trade-Tax Revenue in the Process of Economic Development 58 (3) Protection and Income Distribution 61 (20) The Effects of Protection on Income Distribution 61 (3) The Stolper-Samuelson Model 64 (8) The Conservative Social Welfare Function 72 (4) Senescent Industry Protection and Adjustment Assistance 76 (2) Interregional Income Distribution 78 (3) The Terms of Trade Argument For Taxes On Trade 81 (24) The Optimum Trade Tax in the Two-sector Model 82 (6) Multicommodity Model 88 (1) Private Monopoly 89 (1) Foreign Reaction and Retaliation 90 (3) Growth and the Terms of Trade 93 (2) Practical Significance of the Terms-of-trade Argument 95 (10) Appendix 6.1: The Optimum Export Tax and Optimum Tariff 100 (5) Monopoly, Market Structure and Economies of Scale 105 (34) The Effects of Protection on Monopoly Profits 105 (6) Fragmentation of Production 111 (3) Tariffs and Market Structure 114 (3) Made-to-measure Tariffs 117 (3) The X-efficiency Effects of Protection and Monopoly 120 (6) The Rent-seeking Society 126 (2) Dumping 128 (11) The Infant Industry Argument 139 (23) Dynamic Internal Economies 140 (6) Dynamic External Economies 146 (5) The Mill-Bastable Test 151 (2) Wide Application of the Infant Industry Argument 153 (1) The Problem of Investment Coordination 154 (2) Economies of Scale and the Pseudo-Infant Industry Argument 156 (2) Research and Development, and the Protection of Advanced Technology Industries 158 (4) Protection And Capital Accumulation 162 (19) The Real Income Effect of Protection on Savings and Investment 162 (3) Savings and the Income Distribution Effects of Protection 165 (2) Cheap Imported Capital Goods, Investment and Employment 167 (7) Consumption Postponement and the Demonstration Effect 174 (1) The Inducement to Invest and Backward Linkage 175 (4) Learning and the Rate of Growth 179 (2) Some Dynamic Aspects of Trade Policy 181 (12) The Anticipation of Price Changes 182 (1) Fluctuations in Export Earnings 183 (2) Risk Avoidance 185 (3) The Cost of Protection and the Rate of Grwoth 188 (2) The 'Dynamic' Effects of Trade on Knowledge 190 (3) Protection and Foreign Investment 193 (22) The Effect of Protection on Foreign Capital Inflow 194 (1) Taxation of Foreign Investment 195 (10) Tariffs as Second-best Taxes or Subsidies on Foreign Capital 205 (2) The Effects of a Given Tariff System on the Gains or Losses from Foreign Investment 207 (1) Multinational Corporations 208 (7) Optimal Tariff Dismantling 215 (7) Some Tariffs are not Alterable 216 (1) Concertina Method 217 (1) Across-the-Board Reduction 218 (1) Tariff Dismantling and the Exchange Rate 219 (3) The Environment and Trade Policy 222 (22) Trade Liberalization and the Environment: Small Country Case 222 (9) Environmental Policy Interaction: Multicountry Case but no Transborder Pollution 231 (5) Transborder Externalities and Global Public Goods 236 (4) Capital Mobility and Capital Controls 240 (2) Summary: The Role of Trade Policy 242 (2) Strategic Trade Policy 244 (18) Oligopoly and Strategic Trade Policy 244 (11) Industrial Policy 255 (3) Japanese Industrial Policy: What Difference Did It Make? 258 (4) The Exchange Rate, Trade Policy, and the Current Account 262 (16) Trade Liberalization Requires Depreciation 262 (1) The Basic Theory 263 (4) Exchange Rate Protection 267 (1) Capital Inflow and the Real Appreaciation Problem 268 (3) Real Wage Rigidity and a Balance-of-payments Problem 271 (2) How Protection Affects the Current Account 273 (2) The Fixed Exchange Rate Regime: What Role for Protection? 275 (2) Summary 277 (1) Conclusion 278 (7) Bibliography 285 (12) Index of Names 297 (2) Index of Subjects 299