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Tariff Liberalization Policy and Financial Restrictions

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  • Joshua Aizenman

Abstract

The purpose of this paper is to assess how restrictions on capital mobility affect adjustment to a tariff liberalization policy. This is done by comparing the adlustment process under free and restricted convertibility of foreign assets in a regime where the commercial exchange rate is pegged. It is shown that trade liberalization causes in the short run a larger drop in domestic goods prices and a smaller current account deficit in a regime with restricted convertibility. Similar results apply also for the long-run current account effects of the liberalization: they are smaller under financial restrictions.

Suggested Citation

  • Joshua Aizenman, 1983. "Tariff Liberalization Policy and Financial Restrictions," NBER Working Papers 1253, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1253
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    References listed on IDEAS

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    1. Eichengreen, Barry J., 1981. "A dynamic model of tariffs, output and employment under flexible exchange rates," Journal of International Economics, Elsevier, vol. 11(3), pages 341-359, August.
    2. Sebastian Edwards, 1983. "The Order of Liberalization of the Current and Capital Accounts of the Balance of Payments: A Survey of the Major Issues," UCLA Economics Working Papers 310, UCLA Department of Economics.
    3. Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 617-625, June.
    4. Marion, Nancy Peregrim, 1981. "Insulation Properties of a Two-Tier Exchange Market in a Portfolio Balance Model," Economica, London School of Economics and Political Science, vol. 48(189), pages 61-70, February.
    5. Robert P. Flood & Nancy Peregrim Marion, 1982. "The Transmission of Disturbances under Alternative Exchange-Rate Regimes with Optimal Indexing," The Quarterly Journal of Economics, Oxford University Press, vol. 97(1), pages 43-66.
    6. Frenkel, Jacob A & Rodriguez, Carlos Alfredo, 1975. "Portfolio Equilibrium and the Balance of Payments: A Monetary Approach," American Economic Review, American Economic Association, vol. 65(4), pages 674-688, September.
    7. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-971, December.
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    Cited by:

    1. Sebastian Edwards, 1987. "Tariffs, Terms of Trade, and the Real Exchange Rate in an Intertemporal Optimizing Model of the Current Account," NBER Working Papers 2175, National Bureau of Economic Research, Inc.
    2. Sebastian Edwards, 1987. "Anticipated Protectionist Policies, Real Exchange Rates and the Current Account," UCLA Economics Working Papers 437, UCLA Department of Economics.
    3. Addison T. & Demery L., 1986. "Impact of liberalisation on growth and equity," ILO Working Papers 992500143402676, International Labour Organization.
    4. Sebastian Edwards, 1987. "The Liberalization of the Current Capital Accounts and the Real ExchangeRate," NBER Working Papers 2162, National Bureau of Economic Research, Inc.
    5. Sebastian Edwards, 1987. "The Order of Liberalization of the Current And Capital Accounts and the Real Exchange Rate: A Model and Some Reflection Based on the Southern Cone Experience," UCLA Economics Working Papers 427, UCLA Department of Economics.

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