economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

, the Metzler paradox (named after the American economist

Lloyd Metzler Lloyd Appleton Metzler (3 April 1913 – 26 October 1980) was an American economist best known for his contributions to international trade theory. He was born in Lost Springs, Kansas in 1913. Although most of his career was spent at the Univ ...

) is the theoretical possibility that the imposition of a

tariff A tariff or import tax is a duty (tax), duty imposed by a national Government, government, customs territory, or supranational union on imports of goods and is paid by the importer. Exceptionally, an export tax may be levied on exports of goods ...

import An importer is the receiving country in an export from the sending country. Importation and exportation are the defining financial transactions of international trade. Import is part of the International Trade which involves buying and receivin ...

s may reduce the relative internal price of that good. It was proposed by

in 1949 upon examination of tariffs within the

Heckscher–Ohlin model The Heckscher–Ohlin model (, H–O model) is a general equilibrium mathematical model of international trade, developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics. It builds on David Ricardo's theory of comparative ...

. The paradox has roughly the same status as

immiserizing growth Immiserizing growth is a theoretical situation first proposed by Jagdish Bhagwati, in 1958, where economic growth could result in a country being worse off than before the growth. If growth is heavily export based, it might lead to a fall in the te ...

and a transfer that makes the recipient worse off. 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 The terms of trade (TOT) is the relative price of exports in terms of imports and is defined as the ratio of export prices to import prices. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods. An ...

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.Krugman and Obstfeld (2003), p. 113

See also

References

Further reading