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Import Substitution and Capital Accumulation

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  • E. Young Song

Abstract

This paper examines tariffs and other policies designed to protect the domestic investment good industry in a small open economy. In a dynamic two-sector model, where a nontraded investment good competes with an imported investment good, the paper identifies two channels through which commercial policies affect the domestic sector: one through the standard substitution of the domestic for the foreign investment good and the other through their effect on Tobin's q and the aggregate investment demand. If a commercial policy decreases investment sufficiently, it can hurt the domestic industry in both the short and the long run.

Suggested Citation

  • E. Young Song, 1993. "Import Substitution and Capital Accumulation," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 670-687, August.
    • Handle: RePEc:cje:issued:v:26:y:1993:i:3:p:670-87
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    Cited by:

    1. Pavel Kadochnikov, 2006. "An Analysis of Import Substitution in Russia after the 1998 Crisis," Research Paper Series, Gaidar Institute for Economic Policy, issue 95, pages 148-148.
    2. Osang, Thomas & Turnovsky, Stephen J., 2000. "Differential tariffs, growth, and welfare in a small open economy," Journal of Development Economics, Elsevier, vol. 62(2), pages 315-342, August.

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