Lee, Shun-Fa (2010): Tariff, Growth, and Welfare. Forthcoming in: Review of International Economics
Download (218kB) | Preview
We develop a two-country (Home and Foreign) by two-good (consumption good and investment good) by one factor (capital) endogenous growth model with international knowledge spillover to study the relationship between an import tariff and economic growth and welfare. First, unlike the past literature, we do not need to make an assumption such that the growth rates between countries are identical in a balanced growth path (BGP). Second, we show that there exists a unique and saddle-point BGP with both countries being incompletely specialized. Third, a higher import tariff on the consumption good in the domestic country may boost (reduce) the rate of economic growth when the foreign (domestic) country has an absolute advantage in the investment good. Finally, a rise in the tariff rate by one country may improve world welfare under some parameter spaces.
|Item Type:||MPRA Paper|
|Original Title:||Tariff, Growth, and Welfare|
|Keywords:||two-country endogenous growth model, international knowledge spillover, import tariff, economic growth, welfare|
|Subjects:||F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations
O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies
|Depositing User:||Shun-Fa Lee|
|Date Deposited:||20. Dec 2010 03:50|
|Last Modified:||18. Mar 2015 01:16|
Arrow, K.J., 1962. The economic implications of learning by doing. Review of Economic Studies 29, 155–173.
Ben-David, D. and M.B. Loewy, 1998. Free trade, growth, and convergence, Journal of Economic Growth 3, 143-170.
Benhabib, J., Meng Q., Nishimura, K., 2000. Indeterminacy under constant returns to scale in multisector economics. Econometrica 68, 1541-1548.
Bond, E.W., K. Trask and P. Wang. 2003. Factor accumulation and trade: dynamic comparative advantage with endogenous physical and human capital, International Economic Review 44, 1041-1060.
Chen, B.-L., S.-F. Lee and K. Shimomura, 2009. Import tariffs and growth in a model with habits, International Trade and Economic Dynamics, edited by Takashi Kamihigashi and Laixun Zhao, Berlin Heidelberg: Springer-Verlag Press, 299-322.
Clements, M.A. and J.G. Williamson, 2004. Why did the tariff-growth correlation change after 1950? Journal of Economic Growth 9, 5-46.
Coe, D.T., and E. Helpman. 1995. International R&D spillovers, European Economic Review 39, 859-887.
Doi, J., K. Nishimura and K. Shimomura. 2007. A two-country dynamic model of international trade and endogenous growth: Multiple balanced growth paths and stability, Journal of Mathematical Economics 43, 390-419.
Drugeon, J.-P., Venditti, A., 2001. Intersectoral external effects, multiplicities and indeterminacies. Journal of Economic Dynamics and Control 25, 765– 787.
Drugeon, J.-P., Poulsen, O., Venditti, A., 2003. On intersectoral allocations, factors substitutability and multiple long-run growth paths. Economic Theory 21, 175– 183.
Easterly, W. and S. Rebelo, 1993. Fiscal policy and economic growth, Journal of Monetary Economics 32, 417-458. Eaton, J., and S. Kortum 1999. International Patenting and Technology Diffusion: Theory and Measurement, International Economic Review 40, 537-570.
Edwards, S., 1992. Trade orientation, distortions and growth in developing countries, Journal of Development Economics 39, 31-57.
Farmer, Roger E.A. and A. Lahiri. 2005. A two-country model of endogenous growth, Review of Economic Dynamics 8, 68-88.
Fukushima, T. and N. Kim, 1989. Welfare improving tariff changes: a case of many goods and countries, Journal of International Economics. 26, pp. 383–388.
Grossman, G.M. and E. Helpman, 1990. Comparative advantage and long-run growth, American Economic Review 80, 796-815.
Harrison, A., 1996. Openness and growth: a time series, cross-country analysis for developing countries, Journal of Development Economics 48, 419-447.
Hatta, T. and T. Fukushima, 1979. The welfare effect of tariff rate reductions in a many-country world, Journal of International Economics 9, pp. 503–511.
Irwin, D.A., 2002. Interpreting the tariff-growth correlation of the late nineteenth century, NBER Working Paper Series, No. 8739.
Jones, L.E. and R. Manuelli, 1990. A convex model of equilibrium growth, Journal of Political Economy 98, 1008-1037.
Keller, W. 2002. Geographic localization of international technology diffusion, American Economic Review 92, 120-142.
Lee, J.-W., 1993. International trade, distortions, and long-run economic growth, IMF Staff Papers 40, 299-328.
Lucas, Jr., R., 1988. On the mechanics of economic development, Journal of Monetary Economics 22, 3-42.
Mino, K., 2001. Indeterminacy and endogenous growth with social constant returns. Journal of Economic Theory 97, 203-222.
Naito, T., 2006a. Tariff and tax reform: dynamic implications. Journal of International Economics 68, 504-517.
Naito, T., 2006b. Growth, revenue, and welfare effects of tariff and tax reform: win-win-win strategies, Journal of Public Economics 90, 1263-1280.
Nakanishi, N. 1993. Welfare analysis of tariff and without international change with transfers, Journal of International Economics 35, 377-387.
Nishimura, K., Venditti, A., 2002. Intersectoral externalities and indeterminacy. Journal of Economic Theory 105, 140–157.
O’Rourke, K.H., 2000. Tariffs and growth in the late nineteenth century, Economic Journal 110, 456-483.
Osang, T. and A. Pereira, 1996. Import tariffs and growth in a small open economy, Journal of Public Economics 60, 45-71.
Park, W. 1995. International R&D spillovers and OECD economic growth, Economic Inquiry 23, 571-591.
Rebelo, S., 1991. Long-run policy analysis and long-run growth, Journal of Political Economy, 99, 500-521.
Rivera-Batiz, L.A. and P.M. Romer, 1991. International trade with endogenous technological change, European Economic Review 35, 971-1004.
Romer, Paul M. 1986. Increasing returns and long-run growth, Journal of Political Economy 94, 1002-1037. Romer, Paul M. 1990, Endogenous technological change, Journal of Political Economy 98, s71-s102.
Ventura, J. 1997. Growth and interdependence, Quarterly Journal of Economics 112, 57-84.
Yanikkaya, H., 2003. Trade openness and economic growth: a cross-country empirical investigation, Journal of Development Economics 72, 57-89.