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Growth, expectations and tariffs

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  • Honkapohja , Seppo

    ()
    (Bank of Finland)

  • Turunen, Arja H

    ()
    (University of New Orleans. Department of Economics and Finance)

  • Woodland, Alan D

    (University of New South Wales)

Abstract

We study a many-country endogenous growth model in which decisions about innovation and new investment are influenced by growth expectations. Adaptive learning dynamics determine the country-specific short-run transition paths. The countries differ in basic structural parameters and may impose tariffs on imports of capital goods. Numerical experiments illustrate the adjustment dynamics that follow the use of tariffs. We show that countries that limit trade in capital goods can experience dynamic gains both in growth and in utility and that such gains persist longer the larger the structural advantages of the region that applies tariffs. Substantial differences in levels of innovation, consumption, output and utility can appear, and asymmetries in economic outcomes that were present before trade restrictions are made more severe.

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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 9/2011.

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Length: 52 pages
Date of creation: 20 Apr 2011
Date of revision:
Handle: RePEc:hhs:bofrdp:2011_009

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: endogenous growth; expectations; learning; short-run dynamics; tariffs; complementary capital goods;

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  1. Rossi-Hansberg, Esteban & Antras, Pol, 2009. "Organizations and Trade," Scholarly Articles 3199064, Harvard University Department of Economics.
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  4. Quah, Danny, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," CEPR Discussion Papers 1586, C.E.P.R. Discussion Papers.
  5. Evans, George W & Honkapohja, Seppo & Mitra, Kaushik, 2007. "Anticipated Fiscal Policy and Adaptive Learning," CEPR Discussion Papers 6216, C.E.P.R. Discussion Papers.
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  15. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
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  17. Raja Kali & Fabio Mendez & Javier Reyes, 2007. "Trade structure and economic growth," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 16(2), pages 245-269.
  18. Quah, Danny T, 1997. " Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," Journal of Economic Growth, Springer, vol. 2(1), pages 27-59, March.
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