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Phasing In And Phasing Out Protectionism With Costly Adjustments Of Labour

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  • Karp, Larry S.
  • Paul, Thierry

Abstract

We study the dynamics of optimal trade policy in a model with costly inter-sectoral adjustment of labour, where migrants pay less than the marginal social cost of migration. If workers have rational expectations, a future tariff has an announcement effect on the current migration decision. If the government is able to commit itself to future policy, the optimal trajectory involves phasing in and then phasing out protection of the dying sector. This contrasts with recommendations of gradual liberalization. Without the ability to make commitments, the equilibrium policy begins with and maintains free trade.

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Bibliographic Info

Paper provided by International Agricultural Trade Research Consortium in its series Working Papers with number 51112.

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Date of creation: 1993
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Handle: RePEc:ags:iatrwp:51112

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Related research

Keywords: adjustment costs; dynamic tariffs; time inconsistency; Markov perfection; International Relations/Trade;

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Cited by:
  1. Erling Steigum & Øystein Thøgersen, 2001. "Borrow and Adjust: Fiscal Policy and Sectoral Adjustment in an Open Economy," CESifo Working Paper Series 583, CESifo Group Munich.
  2. Alvaro Forteza & Rossana Patrón, 2003. "Trade Liberalisation with Costly Adjustment," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 95-125, May.
  3. Karp, Larry, 1995. "The Direction and Timing of Agricultural Trade Refonn in Central and East Europe," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9z61f67x, Department of Agricultural & Resource Economics, UC Berkeley.
  4. Erhan Artuç & Shubham Chaudhuri & John McLaren, 2007. "Delay and Dynamics in Labor Market Adjustment: Simulation Results," Koç University-TUSIAD Economic Research Forum Working Papers 0703, Koc University-TUSIAD Economic Research Forum.
  5. Batabyal, Amitrajeet A. & Beladi, Hamid, 2002. "A dynamic analysis of protection and environmental policy in a small trading developing country," European Journal of Operational Research, Elsevier, vol. 143(1), pages 197-209, November.
  6. D. Lee & A. Batabyal, . "Dynamic environmental policy in developing countries with a dual economy," Working Papers 2000-29, Utah State University, Department of Economics.
  7. Karp, Larry & Paul, Thierry, 2002. "Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7rk3z9w1, Department of Agricultural & Resource Economics, UC Berkeley.
  8. Shubham Chaudhuri & John McLaren, 2007. "Some Simple Analytics of Trade and Labor Mobility," NBER Working Papers 13464, National Bureau of Economic Research, Inc.
  9. Didier LAUSSEL & Philippe MICHEL & Thierry Paul, 2004. "Intersectoral adjustment and unemployment in a two-country Ricardian model," Discussion Papers (REL - Recherches Economiques de Louvain) 2004023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  10. Terra, Maria Cristina T., 1999. "Tariff design with varying degrees of commitment," Journal of Development Economics, Elsevier, vol. 58(1), pages 123-147, February.
  11. Stephen Cameron & Shubham Chaudhuri & John McLaren, 2007. "Trade Shocks and Labor Adjustment: Theory," NBER Working Papers 13463, National Bureau of Economic Research, Inc.

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