This paper uses a dynamic computable general equilibrium model to simulate the effects of unilateral reductions by the U.S. in tariffs and "voluntary" export restraints (VER's). We consider 50 percent cuts in tariffs and in ad valorem VER equivalents, separately and in combination. The model features intertemporal optimization by households and firms, explicit adjustment dynamics, an integrated treatment of the current and capital accounts of the balance of payments, and industry disaggregation. Central findings include: (1) VER's are considerably more significant than tariffs in terms of the magnitude of the macroeconomic effects induced by their reduction; (2) while VER reductions enhance domestic welfare, unilateral tariff cuts reduce domestic welfare (as a consequence of U.S. monopsony power and associated adverse terms of trade effects); (3) international capital movements critically regulate the responses of the U.S. and foreign economies to these trade initiatives and produce significant differences between short and long-run effects; and (4) effects differ substantially across industries. Together, these findings indicate that simulation analyses that disregard international capital movements, adjustment dynamics, and industry differences may generate seriously misleading results.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
2965.
Length: Date of creation: May 1989 Date of revision: Handle: RePEc:nbr:nberwo:2965
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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.:
Rachel McCulloch & Maurice R. Greenberg & Lionel H. Olmer, 1988.
"International Competition in Services,"
NBER Chapters,
in: The United States in the World Economy, pages 367-422
National Bureau of Economic Research, Inc.
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