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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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  • Robert C. Tatum

    (University of North Carolina - Asheville)

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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File URL: http://128.118.178.162/eps/if/papers/0506/0506007.pdf
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Bibliographic Info

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
Date of revision:
Handle: RePEc:wpa:wuwpif:0506007

Note: Type of Document - pdf; pages: 52
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Web page: http://128.118.178.162

Related research

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

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  1. Rodrik, Dani, 1990. "How should structural adjustment programs be designed?," World Development, Elsevier, vol. 18(7), pages 933-947, July.
  2. Rui Albuquerque & Sergio Rebelo, 1998. "On the Dynamics of Trade Reform," NBER Working Papers 6700, National Bureau of Economic Research, Inc.
  3. Blundell, Richard, 1988. "Consumer Behaviour: Theory and Empirical Evidence--a Survey," Economic Journal, Royal Economic Society, vol. 98(389), pages 16-65, March.
  4. Rodrik, Dani, 1989. "Promises, Promises: Credible Policy Reform via Signalling," Economic Journal, Royal Economic Society, vol. 99(397), pages 756-72, September.
  5. Anne O. Krueger, 1981. "Alternative Trade Strategies and Employment in LDCs: An Overview," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 20(3), pages 277-301.
  6. Takacs, Wendy E, 1990. "Options for Dismantling Trade Restrictions in Developing Countries," World Bank Research Observer, World Bank Group, vol. 5(1), pages 25-46, January.
  7. Harrison, Ann & Hanson, Gordon, 1999. "Who gains from trade reform? Some remaining puzzles," Journal of Development Economics, Elsevier, vol. 59(1), pages 125-154, June.
  8. Halvor Mehlum, 1998. "Why gradualism?," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 7(3), pages 279-297.
  9. Rudiger Dornbusch, 1992. "The Case for Trade Liberalization in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 69-85, Winter.
  10. Buffie, Edward F., 1995. "Trade liberalization, credibility and self-fulfilling failures," Journal of International Economics, Elsevier, vol. 38(1-2), pages 51-73, February.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Calvo, Guillermo A., 1987. "On the costs of temporary policy," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 245-261, October.
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