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.

Additional Metadata
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