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On the Static and Dynamic Costs of Trade Restrictions

Author

Listed:
  • Charles Van Marrewijk

    (Erasmus University Rotterdam, The Netherlands.)

  • Koen Berden

    (Erasmus University Rotterdam, The Netherlands.)

Abstract

We analyze the costs of trade restrictions for a small developing economy. Capital goods are only introduced on the market if it is profitable to do so. The economy evolves to a balanced growth path in which income, welfare, and the share of introduced capital goods increase if trade restrictions fall. The adjustment path is asymmetric: an increase in trade restrictions will slow-down economic growth, while a decrease may give rise to a rapid catch-up process. The static costs of trade restrictions are smaller than the dynamic costs if, and only if, it changes the share of introduced capital goods.

Suggested Citation

  • Charles Van Marrewijk & Koen Berden, 2004. "On the Static and Dynamic Costs of Trade Restrictions," Centre for International Economic Studies Working Papers 2004-14, University of Adelaide, Centre for International Economic Studies.
    • Handle: RePEc:adl:cieswp:2004-14
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    File URL: http://www.adelaide.edu.au/cies/papers/0414.pdf
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    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Coe, David T & Helpman, Elhanan & Hoffmaister, Alexander W, 1997. "North-South R&D Spillovers," Economic Journal, Royal Economic Society, vol. 107(440), pages 134-149, January.
    3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    4. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
    5. Koen G. Berden & Charles van Marrewijk, 2001. "Maintenance Costs, Obsolescence, and Endogenous Growth," Tinbergen Institute Discussion Papers 01-060/2, Tinbergen Institute.
    6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    7. van Marrewijk, Charles, 1999. "Capital Accumulation, Learning, and Endogenous Growth," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 453-475, July.
    8. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Charles van Marrewijk, 2005. "Basic Exchange Rate Theories," Tinbergen Institute Discussion Papers 05-024/2, Tinbergen Institute.
    2. Van Marrewijk, Charles & Berden, Koen G., 2007. "On the static and dynamic costs of trade restrictions for small developing countries," Journal of Development Economics, Elsevier, vol. 84(1), pages 46-60, September.

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    More about this item

    Keywords

    Growth; development; static and dynamic costs; trade restrictions; new goods.;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • F - International Economics
    • O - Economic Development, Innovation, Technological Change, and Growth

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