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Trade Liberalization in General Equilibrium: Intertemporal and Inter-Industry Effects

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  • Lawrence H. Goulder
  • Barry Eichengreen

Abstract

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2965.

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Date of creation: May 1989
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Publication status: published as Canadian Journal of Economics, June 1992
Handle: RePEc:nbr:nberwo:2965

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  1. James M. Poterba & Julio J. Rotemberg, 1986. "Money in the Utility Function: An Empirical Implementation," NBER Working Papers 1796, National Bureau of Economic Research, Inc.
  2. Lawrence H. Goulder & Barry Eichengreen, 1989. "Savings Promotion, Investment Promotion, and International Competitiveness," NBER Chapters, in: Trade Policies for International Competitiveness, pages 5-52 National Bureau of Economic Research, Inc.
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  7. Shiells, C.R. & Stern, R.M. & Deardorff, A.V., 1988. "Estimates Of The Elasticities Of Substitution Between Imports And Home Goods For The United States: Reply," Working Papers 235, Research Seminar in International Economics, University of Michigan.
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  13. 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.
  14. Darrell Duffie & William Zame, 1988. "The Consumption-Based Capital Asset Pricing Model," Discussion Papers 88-10, University of Copenhagen. Department of Economics.
  15. Randall Wigle, 1988. "General Equilibrium Evaluation of Canada-U.S. Trade Liberalization in a Global Context," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 539-64, August.
  16. Russell S. Boyer, 1977. "Commercial Policy under Alternative Exchange Rate Regimes," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 218-32, May.
  17. Feenstra, Robert C., 1985. "Automobile prices and protection: The U.S.-Japan trade restraint," Journal of Policy Modeling, Elsevier, vol. 7(1), pages 49-68.
  18. Smith, M A M, 1977. "Capital Accumulation in the Open Two-Sector Economy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 87(346), pages 273-82, June.
  19. Ishii, Naoko & McKibbin, Warwick & Sachs, Jeffrey, 1985. "The economic policy mix, policy cooperation, and protectionism: Some aspects of macroeconomic interdependence among the United States, Japan, and other OECD countries," Journal of Policy Modeling, Elsevier, vol. 7(4), pages 533-572.
  20. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
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  22. Warwick J. McKibbin & Jeffrey Sachs, 1986. "Coordination of Monetary and Fiscal Policies in the OECD," NBER Working Papers 1800, National Bureau of Economic Research, Inc.
  23. Bovenberg, A.L., 1988. "The corporate tax in an intertemporal equilibrium model with imperfectly mobile capital," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152948, Tilburg University.
  24. 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.
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Cited by:
  1. McKibbin, W.J., 1996. "Quantifying APEC Trade Libralization: A Dynamic Analysis," Papers, Brookings Institution - Working Papers 122, Brookings Institution - Working Papers.
  2. Dissou, Yazid & Mac Leod, Carolyn & Souissi, Mokhtar, 2002. "Compliance costs to the Kyoto Protocol and market structure in Canada: a dynamic general equilibrium analysis," Journal of Policy Modeling, Elsevier, vol. 24(7-8), pages 751-779, November.
  3. Keuschnigg, Christian & Kohler, Wilhelm K., 1994. "Commercial Policy and Dynamic Adjustment Under Monopolistic Competition," CEPR Discussion Papers 1037, C.E.P.R. Discussion Papers.
  4. Terrie Walmsley, 1998. "LONG-RUN SIMULATIONS WITH GTAP: Illustrative Results from APEC Trade Liberalisation," Centre of Policy Studies/IMPACT Centre Working Papers ip-70, Victoria University, Centre of Policy Studies/IMPACT Centre.
  5. Marouani, Mohamed A., 2005. "The Impact of the Multifiber Agreement Phaseout on Unemployment in Tunisia: A Prospective Dynamic Analysis," Center for European, Governance and Economic Development Research Discussion Papers 39, University of Goettingen, Department of Economics.
  6. Gabrielle Antille & Fabrizio Carlevaro & Nicolas Schmitt & Simon Fraser, 1990. "Europe 1992 and Beyond: Towards a Quantitative General Equilibrium Assessment for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 126(III), pages 193-213, September.
  7. repec:got:cegedp:39 is not listed on IDEAS
  8. Marouani, Mohamed Ali, 2009. "Is the End of the MFA a threat?," Economics Papers from University Paris Dauphine 123456789/4345, Paris Dauphine University.
  9. Michael A. Kouparitsas, 1998. "Dynamic trade liberalization analysis: steady state, transitional and inter-industry effects," Working Paper Series, Federal Reserve Bank of Chicago WP-98-15, Federal Reserve Bank of Chicago.
  10. Klepper, Gernot & Lorz, Jens Oliver & Stähler, Frank & Thiele, Rainer & Wiebelt, Manfred, 1993. "Empirische allgemeine Gleichgewichts-Modelle: Struktur und Anwendungsmöglichkeiten," Kiel Working Papers 595, Kiel Institute for the World Economy.
  11. Willenbockel, Dirk, 1999. "Dynamic applied general equilibrium trade policy analysis in the presence of foreign asset cross-ownership," Economic Modelling, Elsevier, vol. 16(3), pages 371-388, August.
  12. Carlos E. J. M. Zarazaga, 2000. "Measuring the benefits of unilateral trade liberalization; part 2: dynamic models," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q1, pages 29-39.
  13. AKITOBY, Bernardin, 1997. "Rigidité normale, dévaluation et équilibre général intertemporel," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9708, Universite de Montreal, Departement de sciences economiques.
  14. Mohamed Ali Marouani, 2007. "Is the End of the MFA a threat for the Tunisian Economy?," Working Papers DT/2007/05, DIAL (Développement, Institutions et Mondialisation).

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