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Tariffs, Investment and the Current Account

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  • Roldos, Jorge E

Abstract

A dynamic specific-factors model with adjustment costs of investment is used to study the impact of tariffs on the current account. A permanent increase in tariffs generates a current account deficit, as the import-competing sector spreads the increase of the capital stock over time. A temporary increase in tariffs has ambiguous effects. If the size and duration of the tariff are large enough, a strong response in investment could outweigh the increased savings and the current account deteriorates. For small and short-lived tariffs, the postponement of investment reinforces that of consumption, leading to a current account surplus. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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  • Roldos, Jorge E, 1991. "Tariffs, Investment and the Current Account," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 175-194, February.
    • Handle: RePEc:ier:iecrev:v:32:y:1991:i:1:p:175-94
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    Cited by:

    1. Yoshiyasu Ono, 2010. "Trade Policy, Exchange Rate Adjustment and Unemployment," Chapters, in: Noel Gaston & Ahmed M. Khalid (ed.), Globalization and Economic Integration, chapter 7, Edward Elgar Publishing.
    2. Petrucci, Alberto, 2006. "Wealth Accumulation and Growth in a Specific-Factors Model of Trade and Finance," Economics & Statistics Discussion Papers esdp06029, University of Molise, Department of Economics.
    3. Chung-Fu Lai, 2016. "Tariff, Consumption Home Bias and Macroeconomic Dynamics," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(8), pages 425-444, August.
    4. Feng Dai & Songtao Wu & Ling Liang & Zifu Qin, 2016. "Bilateral Trade under Environmental Pressure: Balanced Growth," Journal of Industry, Competition and Trade, Springer, vol. 16(2), pages 209-231, June.
    5. Yoshiyasu Ono, 2014. "International Economic Interdependence and Exchange-rate Adjustment under Persistent Stagnation," The Japanese Economic Review, Japanese Economic Association, vol. 65(1), pages 70-92, March.
    6. Bradford, Scott C. & Phillips, Kerk L., 2008. "The Economic Reunification of Korea: A Dynamic General Equilibrium Model," MPRA Paper 23550, University Library of Munich, Germany.
    7. Chen Fang & Po-Sheng Lin, 2013. "Traded Bond Denominations, Shock Persistence and Current Account Dynamics: Another Look at the Harberger–Laursen–Metzler Effect," Pacific Economic Review, Wiley Blackwell, vol. 18(4), pages 502-529, October.

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