AbstractA Ramsey model for a two-sector economy, comprising a labour intensive non-traded sector and a capital intensive traded sector, is used to analyse the transition following trade liberalization. Liberalization takes the form of removing a tariff wedge that benefited the non-traded sector. This increases overall productivity of capital in the short run, and demand for labour declines. In the presence of a binding minimum real wage this leads to transitional unemployment. In this case, gradualism - in the form of gradually removing the tariff wedge - can be justified. Through gradualism the protection for the labour intensive non-traded sector is prolonged, leading to reduced unemployment in the transition phase.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.
Volume (Year): 7 (1998)
Issue (Month): 3 ()
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- Richard Chisik, 2010.
"Gradualism in Free Trade Agreements: A Theoretical Justification,"
018, Ryerson University, Department of Economics.
- Chisik, Richard, 2003. "Gradualism in free trade agreements: a theoretical justification," Journal of International Economics, Elsevier, vol. 59(2), pages 367-397, March.
- Robert Tatum, 2005.
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- Mehlum, Halvor, 2001. "Speed of adjustment and self-fulfilling failure of economic reform," Journal of International Economics, Elsevier, vol. 53(1), pages 149-167, February.
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