Advanced Search
MyIDEAS: Login to save this paper or follow this series

Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy

Contents:

Author Info

  • Partha Sen
  • Stephen J. Turnovsky

Abstract

This paper analyze these effects of a tariff in an intertemporal optimizing model, emphasizing the role of capital accumulation. Three types of increases in the tariff rate are considered: (i) unanticipated permanent; (ii) unanticipated temporary; (iii) anticipated permanent. There are two main general conclusions to be drawn from the analysis. The first is that the introduction (or increase) of a tariff is contractionary, both in the short run and in the long run. In particular, employment is reduced both in the short run and in the long run, so that there is no significant intertemporal tradeoff, as obtained by previous authors. The fail in the long-run capital stock causes an immediate reduction in the rate of investment, which in turn leads to a current account surplus. While this response of the current account is in accordance with much (but not all) of the existing literature, the mechanism by which it is achieved, namely the decumulation of capital, has not been previously considered. Also, the fact that the declining capital stock is accompanied by an accumulation of foreign bonds means that the savings effect of the tariff is unclear, depending upon which influence dominates. This ambiguity of savings is, however, very different from those occurring in other studies. The second major conclusions stems from the fact that the steady state depended upon the initial stocks of the assets. As a consequence, a temporary tariff, by altering these initial conditions for some later date when the tariff is removed, leads to a permanent effect on the economy.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w2781.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2781.

as in new window
Length:
Date of creation: Dec 1988
Date of revision:
Publication status: published as International Economic Review, Vol. 30, No. 4, pp. 811-831, (November 1989)
Handle: RePEc:nbr:nberwo:2781

Note: ITI IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Obstfeld, Maurice, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 251-70, May.
  2. Eichengreen, Barry J., 1981. "A dynamic model of tariffs, output and employment under flexible exchange rates," Journal of International Economics, Elsevier, vol. 11(3), pages 341-359, August.
  3. Krugman, Paul, 1982. "The macroeconomics of protection with a floating exchange rate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 16(1), pages 141-182, January.
  4. Matsuyama, Kiminori, 1987. "Current account dynamics in a finite horizon model," Journal of International Economics, Elsevier, vol. 23(3-4), pages 299-313, November.
  5. Abel, Andrew B & Blanchard, Olivier J, 1983. "An Intertemporal Model of Saving and Investment," Econometrica, Econometric Society, vol. 51(3), pages 675-92, May.
  6. Sebastian Edwards, 1987. "Tariffs, Terms or Trade, and The Real Exchange Rate in and Intertemporal Optimizing Model of the Current Account," UCLA Economics Working Papers 429, UCLA Department of Economics.
  7. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
  8. Charles Engel & Kenneth Kletzer, 1986. "Tariffs, Saving and the Current Account," NBER Working Papers 1869, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2781. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.