Erhan Artuç () (Department of Economics, Koç University) Shubham Chaudhuri (East Asia and Pacific Poverty Reduction and Economic Management Department, The World Bank) John McLaren (University of Virginia)
Abstract
We simulate numerically a trade model with labor mobility costs added, modeled in such a way as to generate gross flows in excess of net flows. Adjustment to a trade shock can be slow with plausible parameter values. In our base case, the economy moves 95% of the distance to the new steady state in approximately eight years. Gross flows have a large effect on this rate of adjustment and on the normative effects of trade. Announcing and delaying the liberalization can build – or destroy – a constituency for free trade. We study the conditions under which these contrasting outcomes occur.
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Length: 34 pages Date of creation: Jan 2007 Date of revision: Handle: RePEc:koc:wpaper:0703
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