We analyze the costs of trade restrictions for a small developing economy (LDC). Intermediate goods invented elsewhere are only introduced on the LDC market if it is profitable to do so. The LDC economy evolves to a balanced growth path in which income, welfare, and the share of available goods increase if trade restrictions fall. The adjustment path is asymmetric: an increase in trade restrictions leads to a slow-down of economic growth, while a decrease may lead to a rapid catch-up process. The dynamic costs of trade restrictions are in general substantially larger than the static costs.

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Keywords development, growth, new goods, static and dynamic costs, trade restrictions
JEL E0, Macroeconomics and Monetary Economics: General (jel), F0, International Economics: General (jel)
Persistent URL dx.doi.org/10.1016/j.jdeveco.2006.09.002, hdl.handle.net/1765/12986
van Marrewijk, J.G.M, & Berden, K.G. (2007). On the static and dynamic costs of trade restrictions for small developing countries. Journal of Development Economics, 84(1), 46–60. doi:10.1016/j.jdeveco.2006.09.002