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Growth, Specialization, and Trade Liberalization

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  • Michael Devereux

Abstract

This paper examines a two-way interaction between trade liberalization and economic growth. Through dynamic increasing returns to specialization, international trade can increase world growth rates. But growth, through specialization , alters patterns of comparative advantage, changing the incentives to levy tariffs in a dynamic tariff game between governments. Two types of equilibria are analyzed. In one, average growth rates are low, tariffs are high and rising, the ratio of exports to income (the trade ratio) is low, and falls to zero asymptotically. In the other, growth rates are high, tariffs are low and falling, the trade ratio is higher, and rises over time. The conditions under which each type of equilibrium will be observed are investigated.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_786.pdf
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 786.

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Date of creation: Jul 1990
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Handle: RePEc:qed:wpaper:786

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Cited by:
  1. Oetzel, Jennifer M. & Banerjee, Sudeshna Ghosh, 2008. "A case of the tortoise versus the hare? Deregulation process, timing, and firm performance in emerging markets," International Business Review, Elsevier, vol. 17(1), pages 54-77, February.
  2. Kyle Bagwell & Robert W. Staiger, 2002. "GATT-think," Discussion Papers 0102-39, Columbia University, Department of Economics.
  3. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
  4. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
  5. Robert W. Staiger, 1994. "A Theory of Gradual Trade Liberalization," NBER Working Papers 4620, National Bureau of Economic Research, Inc.
  6. Maoz, Yishay & Peled, Dan & Sarid, Assaf, 2009. "Trade Agreements, Bargaining and Economic Growth," MPRA Paper 17064, University Library of Munich, Germany.
  7. Sauré, Philip, 2014. "Domestic policies in self-enforcing trade agreements," European Economic Review, Elsevier, vol. 68(C), pages 19-30.
  8. Jun Ishii & Kei-Mu Yi, 1997. "The growth of world trade," Research Paper 9718, Federal Reserve Bank of New York.
  9. Devereux, Michael B., 1999. "Growth and the dynamics of trade liberalization," Journal of Economic Dynamics and Control, Elsevier, vol. 23(5-6), pages 773-795, April.
  10. Chisik, Richard, 2003. "Gradualism in free trade agreements: a theoretical justification," Journal of International Economics, Elsevier, vol. 59(2), pages 367-397, March.
  11. Opp, Marcus M., 2010. "Tariff wars in the Ricardian Model with a continuum of goods," Journal of International Economics, Elsevier, vol. 80(2), pages 212-225, March.
  12. Maystre, Nicolas & Olivier, Jacques & Thoenig, Mathias & Verdier, Thierry, 2014. "Product-based cultural change: Is the village global?," Journal of International Economics, Elsevier, vol. 92(2), pages 212-230.
  13. Carsten Kowalczyk & Raymond Riezman, 2009. "Trade Agreements," CESifo Working Paper Series 2660, CESifo Group Munich.
  14. Furusawa, Taiji & Lai, Edwin L. -C., 1999. "Adjustment costs and gradual trade liberalization," Journal of International Economics, Elsevier, vol. 49(2), pages 333-361, December.

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