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Capital Movements and the Political Economy of trade Policy

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  • Delfim Gomes Neto

Abstract

Considering a time consistent policy in a two-period political economy model of trade policy, where foreign capital is endogenously determined, the tariff and the level of foreign capital would be higher with external debt than with foreign direct investment. As foreign direct investment is remunerated at the marginal productivity of capital, an increase of the tariff increases its remuneration, increasing also the welfare costs of the tariff. Foreign direct investment can lead to free trade.

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Bibliographic Info

Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 2002-01.

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Date of creation: 2002
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Handle: RePEc:del:abcdef:2002-01

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Cited by:
  1. Cole, Matthew T. & Davies, Ronald B., 2011. "Strategic tariffs, tariff jumping, and heterogeneous firms," European Economic Review, Elsevier, vol. 55(4), pages 480-496, May.
  2. Blanchard, Emily J., 2010. "Reevaluating the role of trade agreements: Does investment globalization make the WTO obsolete?," Journal of International Economics, Elsevier, vol. 82(1), pages 63-72, September.

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