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Phasing In and Phasing Out Protectionism with Costly Adjustment of Labour


  • Karp, Larry
  • Paul, Thierry


The authors study the dynamics of optimal trade policy in a model with costly intersectoral adjustment of labor, where migrants pay less than the marginal social cost of migration. If workers have rational expectations, a future tariff has an announcement effect on the current migration decision. If the government is able to commit itself to future policy, the optimal trajectory involves phasing in and then phasing out protection of the dying sector. This contrasts with recommendations of gradual liberalizations. Without the ability to make commitments, the equilibrium policy begins with and maintains free trade. Copyright 1994 by Royal Economic Society.

Suggested Citation

  • Karp, Larry & Paul, Thierry, 1994. "Phasing In and Phasing Out Protectionism with Costly Adjustment of Labour," Economic Journal, Royal Economic Society, vol. 104(427), pages 1379-1392, November.
  • Handle: RePEc:ecj:econjl:v:104:y:1994:i:427:p:1379-92

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    References listed on IDEAS

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    7. Summers, Lawrence H, 1991. " The Scientific Illusion in Empirical Macroeconomics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(2), pages 129-148.
    8. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 869-902.
    9. Adrian R. Pagan & John C. Robertson, 1995. "Resolving the liquidity effect," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 33-54.
    10. King, Robert G & Watson, Mark W, 1996. "Money, Prices, Interest Rates and the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 35-53, February.
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    Cited by:

    1. Amitrajeet A. Batabyal & Hamid Beladi, 2008. "A Dynamic Analysis Of Protection And Environmental Policy In A Small Trading Developing Country," World Scientific Book Chapters,in: Dynamic And Stochastic Approaches To The Environment And Economic Development, chapter 11, pages 189-212 World Scientific Publishing Co. Pte. Ltd..
    2. Terra, Maria Cristina T., 1999. "Tariff design with varying degrees of commitment," Journal of Development Economics, Elsevier, vol. 58(1), pages 123-147, February.
    3. Amitrajeet A. Batabyal & Dug Man Lee, 2008. "Dynamic Environmental Policy In Developing Countries With A Dual Economy," World Scientific Book Chapters,in: Dynamic And Stochastic Approaches To The Environment And Economic Development, chapter 10, pages 165-187 World Scientific Publishing Co. Pte. Ltd..
    4. Erling Steigum & Øystein Thøgersen, 2003. "Borrow and Adjust: Fiscal Policy and Sectoral Adjustment in an Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 699-724, May.
    5. Alvaro Forteza & Rossana Patrón, 2003. "Trade Liberalisation with Costly Adjustment," Journal of Applied Economics, Universidad del CEMA, vol. 6, pages 95-125, May.
    6. Didier LAUSSEL & Philippe MICHEL & Thierry Paul, 2004. "Intersectoral adjustment and unemployment in a two-country Ricardian model," Discussion Papers (REL - Recherches Economiques de Louvain) 2004023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    7. Karp, Larry, 1995. "The Direction and Timing of Agricultural Trade Refonn in Central and East Europe," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9z61f67x, Department of Agricultural & Resource Economics, UC Berkeley.
    8. Steven J. Matusz, 2001. "Trade Policy Reform and Labor Market Dynamics: Issues and an Agenda for Future Research," Economics Study Area Working Papers 24, East-West Center, Economics Study Area.
    9. Shubham Chaudhuri & John McLaren, 2007. "Some Simple Analytics of Trade and Labor Mobility," NBER Working Papers 13464, National Bureau of Economic Research, Inc.
    10. Larry Karp & Thierry Paul, 2005. "Intersectoral Adjustment and Policy Intervention: the Importance of General-Equilibrium Effects," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 330-355, May.
    11. Stephen Cameron & Shubham Chaudhuri & John McLaren, 2007. "Trade Shocks and Labor Adjustment: Theory," NBER Working Papers 13463, National Bureau of Economic Research, Inc.
    12. Artuç, Erhan & Chaudhuri, Shubham & McLaren, John, 2008. "Delay and dynamics in labor market adjustment: Simulation results," Journal of International Economics, Elsevier, vol. 75(1), pages 1-13, May.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity


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