Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy
This paper analyzes the effects of tariffs in an intertemporal optimizing framework emphasizing the role of capital accumulation. Unanticipated permanent, anticipated temporary, and anticipated permanent increases in the tariff rate are considered. In all cases, the introduction of a tariff is contractionary both in the short run and in the long run. The declining capital stock is accompanied by a current account surplus. The response of savings is unclear. The model has the property that the steady state depends upon the initial stocks of assets. As a consequence of this, a temporary tariff has a permanent (contractionary) effect on the economy. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 30 (1989)
Issue (Month): 4 (November)
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References listed on IDEAS
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- Charles Engel & Kenneth Kletzer, 1986. "Tariffs, Saving and the Current Account," NBER Working Papers 1869, National Bureau of Economic Research, Inc.
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0885, National Bureau of Economic Research, Inc.
- Matsuyama, Kiminori, 1987. "Current account dynamics in a finite horizon model," Journal of International Economics, Elsevier, vol. 23(3-4), pages 299-313, November.
- Krugman, Paul, 1982. "The macroeconomics of protection with a floating exchange rate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 16(1), pages 141-182, January.
- Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
- Sebastian Edwards, 1987.
"Tariffs, Terms of Trade, and the Real Exchange Rate in an Intertemporal Optimizing Model of the Current Account,"
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- Sebastian Edwards, 1987. "Tariffs, Terms or Trade, and The Real Exchange Rate in and Intertemporal Optimizing Model of the Current Account," UCLA Economics Working Papers 429, UCLA Department of Economics.
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