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Capital Movements and the Political Economy of trade Policy

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  • Delfim Gomes Neto

Abstract

Considering a time consistent policy in a two-period political economy model of trade policy, where foreign capital is endogenously determined, the tariff and the level of foreign capital would be higher with external debt than with foreign direct investment. As foreign direct investment is remunerated at the marginal productivity of capital, an increase of the tariff increases its remuneration, increasing also the welfare costs of the tariff. Foreign direct investment can lead to free trade.

Suggested Citation

  • Delfim Gomes Neto, 2002. "Capital Movements and the Political Economy of trade Policy," DELTA Working Papers 2002-01, DELTA (Ecole normale supérieure).
  • Handle: RePEc:del:abcdef:2002-01
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    Cited by:

    1. Cole, Matthew T. & Davies, Ronald B., 2011. "Strategic tariffs, tariff jumping, and heterogeneous firms," European Economic Review, Elsevier, vol. 55(4), pages 480-496, May.
    2. Blanchard, Emily J., 2010. "Reevaluating the role of trade agreements: Does investment globalization make the WTO obsolete?," Journal of International Economics, Elsevier, vol. 82(1), pages 63-72, September.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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