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Sustaining Imperfectly Credible Trade Liberalization: Do the Rate of Tariff Reduction and the Degree of Labor Mobility Matter?

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Author Info
Robert C. Tatum (University of North Carolina - Asheville)

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Abstract

Imperfectly credible trade liberalization can lead to balance of payment deterioration and a subsequent reversal of the reform. Therefore, this paper examines whether the likelihood of policy reversal depends on the rate of tariff reduction or the degree of labor mobility. The analysis shows that transitory unemployment increases the likelihood of policy reversal. Furthermore, a gradual reduction in the tariff rate is found to extend the life of the liberalization episode, but does not necessarily increase the likelihood of sustained liberalization.

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Paper provided by EconWPA in its series International Finance with number 0506007.

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Length: 52 pages
Date of creation: 15 Jun 2005
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Handle: RePEc:wpa:wuwpif:0506007

Note: Type of Document - pdf; pages: 52
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Web page: http://129.3.20.41

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Related research
Keywords: Trade Liberalization; Credibility; Gradual reform; Transitory Unemployment; Balance of Payments;

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Find related papers by JEL classification:
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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References listed on IDEAS
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  1. Froot, Kenneth A., 1988. "Credibility, real interest rates, and the optimal speed of trade liberalization," Journal of International Economics, Elsevier, vol. 25(1-2), pages 71-93, August. [Downloadable!] (restricted)
  2. Mehlum, Halvor, 2001. "Capital accumulation, unemployment, and self-fulfilling failure of economic reform," Journal of Development Economics, Elsevier, vol. 65(2), pages 291-306, August. [Downloadable!] (restricted)
  3. Mehlum, Halvor, 2001. "Speed of adjustment and self-fulfilling failure of economic reform," Journal of International Economics, Elsevier, vol. 53(1), pages 149-167, February. [Downloadable!] (restricted)
  4. Takacs, Wendy E, 1990. "Options for Dismantling Trade Restrictions in Developing Countries," World Bank Research Observer, Oxford University Press, vol. 5(1), pages 25-46, January.
  5. Buffie, Edward F., 1995. "Trade liberalization, credibility and self-fulfilling failures," Journal of International Economics, Elsevier, vol. 38(1-2), pages 51-73, February. [Downloadable!] (restricted)
  6. Rui Albuquerque & Sergio Rebelo, 1998. "On the Dynamics of Trade Reform," NBER Working Papers 6700, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Blundell, Richard, 1988. "Consumer Behaviour: Theory and Empirical Evidence--a Survey," Economic Journal, Royal Economic Society, vol. 98(389), pages 16-65, March. [Downloadable!] (restricted)
  8. Ann Harrison & Gordon Hanson, 1999. "Who Gains from Trade Reform? Some Remaining Puzzles," NBER Working Papers 6915, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Rodrik, Dani, 1990. "How should structural adjustment programs be designed?," World Development, Elsevier, vol. 18(7), pages 933-947, July. [Downloadable!] (restricted)
  10. Rodrik, Dani, 1989. "Promises, Promises: Credible Policy Reform via Signalling," Economic Journal, Royal Economic Society, vol. 99(397), pages 756-72, September. [Downloadable!] (restricted)
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  11. Edwards, Sebastian & van Wijnbergen, Sweder, 1986. "The Welfare Effects of Trade and Capital Market Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 141-48, February. [Downloadable!] (restricted)
  12. Dornbusch, Rudiger, 1992. "The Case for Trade Liberalization in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 69-85, Winter. [Downloadable!] (restricted)
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