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Growth, expectations and tariffs

  • Honkapohja , Seppo


    (Bank of Finland)

  • Turunen, Arja H


    (University of New Orleans. Department of Economics and Finance)

  • Woodland, Alan D

    (University of New South Wales)

We study a many-country endogenous growth model in which decisions about innovation and new investment are influenced by growth expectations. Adaptive learning dynamics determine the country-specific short-run transition paths. The countries differ in basic structural parameters and may impose tariffs on imports of capital goods. Numerical experiments illustrate the adjustment dynamics that follow the use of tariffs. We show that countries that limit trade in capital goods can experience dynamic gains both in growth and in utility and that such gains persist longer the larger the structural advantages of the region that applies tariffs. Substantial differences in levels of innovation, consumption, output and utility can appear, and asymmetries in economic outcomes that were present before trade restrictions are made more severe.

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Paper provided by Bank of Finland in its series Research Discussion Papers with number 9/2011.

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Length: 52 pages
Date of creation: 20 Apr 2011
Date of revision:
Handle: RePEc:hhs:bofrdp:2011_009
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
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  1. Evans, G.W. & Honkapohja ,S. & Mitra, K., 2007. "Anticipated Fiscal Policy and Adaptive Learning," Cambridge Working Papers in Economics 0705, Faculty of Economics, University of Cambridge.
  2. Kaushik Mitra & Seppo Honkapohja, 2004. "Learning Stability in Economies with Heterogenous Agents," Royal Holloway, University of London: Discussion Papers in Economics 04/17, Department of Economics, Royal Holloway University of London, revised Jul 2004.
  3. George Evans & Seppo Honkapohja & Paul Romer, 1996. "Growth Cycles," NBER Working Papers 5659, National Bureau of Economic Research, Inc.
  4. Walz, Uwe, 1997. "Growth and Deeper Regional Integration in a Three-County Model," Review of International Economics, Wiley Blackwell, vol. 5(4), pages 492-507, November.
  5. Michael E. Waugh, 2010. "International Trade and Income Differences," American Economic Review, American Economic Association, vol. 100(5), pages 2093-2124, December.
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  7. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1403-1448, November.
  8. Baldwin, Richard & Martin, Philippe & Ottaviano, Gianmarco, 1998. "Global Income Divergence, Trade and Industrialization: The Geography of Growth Take-Offs," CEPR Discussion Papers 1803, C.E.P.R. Discussion Papers.
  9. Alberto Alesina & Enrico Spolaore & Romain Wacziarg, 2003. "Trade, Growth, and the Size of Countries," Harvard Institute of Economic Research Working Papers 1995, Harvard - Institute of Economic Research.
  10. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  11. Sala-i-Martin, Xavier, 1995. "The Classical Approach to Convergence Analysis," CEPR Discussion Papers 1254, C.E.P.R. Discussion Papers.
  12. Pol Antràs & Esteban Rossi-Hansberg, 2009. "Organizations and Trade," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 43-64, 05.
  13. Tim W. Cogley & Thomas J. Sargent, 2005. "Anticipated Utility and Rational Expectations as Approximations of Bayesian Decision Making," Working Papers 523, University of California, Davis, Department of Economics.
  14. Howitt, Peter & Mayer-Foulkes, David, 2005. "R&D, Implementation, and Stagnation: A Schumpeterian Theory of Convergence Clubs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 147-77, February.
  15. Honkapohja, S. & Turunen-Red, A., 1999. "Complementarity, Growth and Trade," University of Helsinki, Department of Economics 461, Department of Economics.
  16. Quah, Danny, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," CEPR Discussion Papers 1586, C.E.P.R. Discussion Papers.
  17. Quah, Danny T, 1997. " Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," Journal of Economic Growth, Springer, vol. 2(1), pages 27-59, March.
  18. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
  19. Pfajfar, D. & Santoro, E., 2008. "Asymmetries in Inflation Expectation Formation Across Demographic Groups," Cambridge Working Papers in Economics 0824, Faculty of Economics, University of Cambridge.
  20. Raja Kali & Fabio Mendez & Javier Reyes, 2007. "Trade structure and economic growth," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 16(2), pages 245-269.
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