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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.

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  • 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. 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.
    2. Chisik, Richard, 2003. "Gradualism in free trade agreements: a theoretical justification," Journal of International Economics, Elsevier, vol. 59(2), pages 367-397, March.
    3. Sergei Guriev & Mikhail Klimenko, 2015. "Duration and Term Structure of Trade Agreements," Economic Journal, Royal Economic Society, vol. 125(589), pages 1818-1849, December.
    4. 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.
    5. 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.
    6. Sauré, Philip, 2014. "Domestic policies in self-enforcing trade agreements," European Economic Review, Elsevier, vol. 68(C), pages 19-30.
    7. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
    8. 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.
    9. Richard Chisik, 2010. "Limited Incremental Linking and Unlinked Trade Agreements," Working Papers 023, Ryerson University, Department of Economics.
    10. 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.
    11. Carsten Kowalczyk & Raymond Riezman, 2013. "Trade Agreements," Palgrave Macmillan Books, in: Daniel Bernhofen & Rod Falvey & David Greenaway & Udo Kreickemeier (ed.), Palgrave Handbook of International Trade, chapter 13, pages 367-388, Palgrave Macmillan.
    12. Robert Staiger, 1994. "A Theory of Gradual Trade Liberalization," International Trade 9410003, University Library of Munich, Germany, revised 21 Oct 1994.
    13. 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.
    14. Jun Ishii & Kei-Mu Yi, 1997. "The growth of world trade," Research Paper 9718, Federal Reserve Bank of New York.
    15. Costas Hadjiyiannis, 2004. "Common markets and trade liberalization," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 484-508, May.
    16. 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.
    17. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc.
    18. Richard Chisik & Ronald B. Davies, 2004. "Gradualism In Tax Treaties With Irreversible Foreign Direct Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 113-139, February.
    19. Joshua J. Lewer & Hendrik Van den Berg, 2003. "How Large Is International Trade’s Effect on Economic Growth?," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 363-396, July.
    20. 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.
    21. 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.
    22. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.
    23. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.

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