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Import Substitution and Capital Accumulation


  • E. Young Song


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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    References listed on IDEAS

    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Joel Fried, 1980. "The Intergenerational Distribution of the Gains from Technical Change and from International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 65-81, February.
    3. Kareken, John & Wallace, Neil, 1977. "Portfolio autarky: A welfare analysis," Journal of International Economics, Elsevier, vol. 7(1), pages 19-43, February.
    4. Starrett, David A, 1972. "On Golden Rules, the "Biological Theory of Interest," and Competitive Inefficiency," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 276-291, March-Apr.
    5. Dornbusch, Rudiger, 1985. "Intergenerational and international trade," Journal of International Economics, Elsevier, vol. 18(1-2), pages 123-139, February.
    6. Krugman, Paul R, 1987. "Is Free Trade Passe?," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 131-144, Fall.
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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.

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