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How Trade Policy Affects Technology Adoption and Productivity

  • Herrendorf, Berthold
  • Teixeira, Arilton

How does trade policy a affect technology adoption, total factor productivity (TFP henceforth), and per capita income? To study this question we construct a dynamic general equilibrium model of a small open economy in which a coalition of skilled workers chooses the technology. We obtain three results. First, under free trade and under a tariff the best technology is used and TFP and per capita income are as large as is possible. Second, under a quota the best technology may or may not be used; in both cases per capita income and TFP are smaller than under free trade and a tariff. Third, average growth rates are the same across all three trade policy regimes but abandoning a quota leads to a short–term increase in growth rates.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3486.

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Date of creation: Aug 2002
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Handle: RePEc:cpr:ceprdp:3486
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