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Phasing in and Phasing Out Protectionism with Costly Adjustment of Labour

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  • Karp, Larry
  • 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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 856.

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Date of creation: Dec 1993
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Handle: RePEc:cpr:ceprdp:856

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Related research

Keywords: Adjustment Costs; Dynamic Tariffs; Markov Perfection; Time Inconsistency;

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Cited by:
  1. Artuç, Erhan & Chaudhuri, Shubham & McLaren, John, 2008. "Delay and dynamics in labor market adjustment: Simulation results," Journal of International Economics, Elsevier, vol. 75(1), pages 1-13, May.
  2. Erling Steigum & �ystein Th¯gersen, 2003. "Borrow and Adjust: Fiscal Policy and Sectoral Adjustment in an Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 699-724, 05.
  3. Alvaro Forteza & Rossana Patrón, 2001. "Trade liberalisation with costly adjustment," Documentos de Trabajo (working papers) 0901, Department of Economics - dECON.
  4. Larry Karp & Thierry Paul, 2005. "Intersectoral Adjustment and Policy Intervention: the Importance of General-Equilibrium Effects," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 330-355, 05.
  5. D. Lee & A. Batabyal, . "Dynamic environmental policy in developing countries with a dual economy," Working Papers 2000-29, Utah State University, Department of Economics.
  6. Terra, Maria Cristina T., 1999. "Tariff design with varying degrees of commitment," Journal of Development Economics, Elsevier, vol. 58(1), pages 123-147, February.
  7. Stephen Cameron & Shubham Chaudhuri & John McLaren, 2007. "Trade Shocks and Labor Adjustment: Theory," NBER Working Papers 13463, National Bureau of Economic Research, Inc.
  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. 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.
  10. 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).
  11. 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.

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