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International Trade, Distortions and Long-Run Economic Growth

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  • Jong-Wha Lee

Abstract

The links between trade and growth are examined in a neoclassical model of an open economy in which domestic production requires both domestic and imported inputs. The model shows that trade distortions induced by such government policies as tariffs and exchange controls generate cross-country divergences in growth rates and in per capita income over a long transitional period. The empirical results confirm that tariff rates and black market premia, interacting with an estimate of the share of free trade imports, have significant negative effects on the growth rate of per capita income across countries in the orders of magnitude predicted by the model.

Suggested Citation

  • Jong-Wha Lee, 1992. "International Trade, Distortions and Long-Run Economic Growth," IMF Working Papers 1992/090, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1992/090
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    Keywords

    WP; free trade; open economy; trade distortion; tariff rate; saving rate; import share; production function; Tariffs; Trade liberalization; Trade policy; Trade barriers; Personal income; Sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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