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Dynamic Impacts of Trade Liberalization: In the Framework of Eodogenous Growth with Productive Public Capital

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  • Oyamada, Kazuhiko

Abstract

The purpose of this study is to provide an assessment of a question how trade related policy changes, such as tariff liberalization and temporary protection, affect regional welfare levels, growth rates, and economic structure when the possible negative impacts through decelerated accumulation of public capital is important. We approach the question using a forward-looking Applied General Equilibrium (AGE) model of global trade that incorporates endogeneous growth with productive public capital. The model consists of three linked regional models: high-, middle-, and low-income countries. Each regional model has three sectors, i.e., primary industries, manufacturing, and services, and is linked to other regions through bilateral trade flows for all traded sectors. The parameters and exogenous variables are calibrated assuming that the benchmark data is obtained from the global economy in a stationary state. To construct the benchmark data, the Government Finance Statistics Yearbook (GFS), the International Financial Statistics (IFS), and the National Accounts Statistics (NAS) are used to obtain information on government revenue and public expenditure, in addition to the Global Trade Analysis Project (GTAP) version 4 databases. Simulations with the model revealed that the role of middle-income countries to supply products to high-income countries with cheap prices, under the trade liberalization between high- and middle-income countries. If we look at economic growth, the trade liberalization has a positive impact on not only high- and middle-income countries, but also low-income economies. The temporary protections by high-income countries against low-income countries also have similar impacts to the tariff liberalization. Finally, the endogenous productivity change through productive public capital may have synergistic effects that enlarge the impacts of trade-related policies on both private and public investments.

Suggested Citation

  • Oyamada, Kazuhiko, 2002. "Dynamic Impacts of Trade Liberalization: In the Framework of Eodogenous Growth with Productive Public Capital," Conference papers 331035, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331035
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    1. Arndt, Channing, 1996. "An Introduction To Systematic Sensitivity Analysis Via Gaussian Quadrature," Technical Papers 28709, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
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