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Growth, Specialization, and Trade Liberalization

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  • Devereux, Michael B

Abstract

This paper examines a two-way interaction between trade liberalization and economic growth. Through increasing returns to specialization, international trade can increase world growth rates. But growth alters patterns of comparative advantage, changing the incentives to levy tariffs in a dynamic tariff game between governments. Two types of equilibria are analyzed. In a tariff war equilibrium, growth rates are low, tariffs are high and rising, and the ratio of exports to income, the trade ratio, is low and falls to zero asymptotically. In a trade liberalization equilibrium, growth rates are high, tariffs are low and falling, and the trade ratio is higher and is increasing over time. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Devereux, Michael B, 1997. "Growth, Specialization, and Trade Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 565-585, August.
  • Handle: RePEc:ier:iecrev:v:38:y:1997:i:3:p:565-85
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    Cited by:

    1. Devereux, Michael B., 1999. "Growth and the dynamics of trade liberalization," Journal of Economic Dynamics and Control, Elsevier, vol. 23(5-6), pages 773-795, April.
    2. Carsten Kowalczyk & Raymond Riezman, 2009. "Trade Agreements," CESifo Working Paper Series 2660, CESifo Group Munich.
    3. Oetzel, Jennifer M. & Banerjee, Sudeshna Ghosh, 2008. "A case of the tortoise versus the hare? Deregulation process, timing, and firm performance in emerging markets," International Business Review, Elsevier, vol. 17(1), pages 54-77, February.
    4. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
    5. Chisik, Richard, 2003. "Gradualism in free trade agreements: a theoretical justification," Journal of International Economics, Elsevier, vol. 59(2), pages 367-397, March.
    6. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
    7. Jun Ishii & Kei-Mu Yi, 1997. "The growth of world trade," Research Paper 9718, Federal Reserve Bank of New York.
    8. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, Elsevier.
    9. Carmen D. Álvarez-Albelo & Antonio Manresa & Monica Pigem-Vigo, 2015. "Growing through trade: the role of foreign growth and domestic tariffs," Working Papers XREAP2015-04, Xarxa de Referència en Economia Aplicada (XREAP), revised Nov 2015.
    10. MARTINS, Ana Paula, 2015. "Increasing Returns And Endogenous Growth: Market Size And Taste For Variety," Academica Science Journal, Economica Series, Dimitrie Cantemir University, Faculty of Economical Science, vol. 1(5), pages 3-33, June.
    11. Sauré, Philip, 2014. "Domestic policies in self-enforcing trade agreements," European Economic Review, Elsevier, vol. 68(C), pages 19-30.
    12. Robert Staiger, 1994. "A Theory of Gradual Trade Liberalization," International Trade 9410003, University Library of Munich, Germany, revised 21 Oct 1994.
    13. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
    14. Maystre, Nicolas & Olivier, Jacques & Thoenig, Mathias & Verdier, Thierry, 2014. "Product-based cultural change: Is the village global?," Journal of International Economics, Elsevier, vol. 92(2), pages 212-230.
    15. Maoz, Yishay D. & Peled, Dan & Sarid, Assaf, 2011. "Trade agreements, bargaining and economic growth," Journal of Macroeconomics, Elsevier, vol. 33(1), pages 92-101, March.
    16. Furusawa, Taiji & Lai, Edwin L. -C., 1999. "Adjustment costs and gradual trade liberalization," Journal of International Economics, Elsevier, vol. 49(2), pages 333-361, December.
    17. Opp, Marcus M., 2010. "Tariff wars in the Ricardian Model with a continuum of goods," Journal of International Economics, Elsevier, vol. 80(2), pages 212-225, March.
    18. Hiroshi Daisaka & Taiji Furusawa, 2014. "Dynamic Free Trade Networks: Some Numerical Results," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 469-487, August.

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