On the static and dynamic costs of trade restrictions for small developing countries
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.
|Keywords||development, growth, new goods, static and dynamic costs, trade restrictions|
|JEL||Macroeconomics and Monetary Economics: General (jel E0), International Economics: General (jel F0)|
|Persistent URL||dx.doi.org/10.1016/j.jdeveco.2006.09.002, hdl.handle.net/1765/12986|
|Journal||Journal of Development Economics|
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