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The Growth and Welfare Consequences of Differential Tariffs With Endogenously-Supplied Capital and Labor

  • Philip L. Brock
  • Stephen J. Turnovsky

This paper analyzes the impact of differential tariffs on consumption and investment in a specific factors model of a small open economy in which capital is accumulated over time. Particular attention is devoted to the welfare aspects. highlighting the cost of the intertemporal distortions produced by protective trade policies. Several specific welfare propositions are obtained. First, tariff protection is shown to create short-run benefits but long-run costs in welfare. Secondly, the second-best policy for the two tariffs is characterized. Finally, several propositions summarizing the implications of our analysis for tariff reform are derived.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4011.

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Date of creation: Mar 1992
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Publication status: published as Brock, Philip L. and Stephen J. Turnovsky. "The Growth And Welfare Consequences Of Differential Tariffs," International Economic Review, 1993, v34(4), 765-794.
Handle: RePEc:nbr:nberwo:4011
Note: ITI IFM
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  1. Bertrand, Trent J & Vanek, Jaroslav, 1971. "The Theory of Tariffs, Taxes, and Subsidies: Some Aspects of the Second Best," American Economic Review, American Economic Association, vol. 61(5), pages 925-31, December.
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  7. Brecher, Richard A. & Findlay, Ronald, 1983. "Tariffs, foreign capital and national welfare with sector-specific factors," Journal of International Economics, Elsevier, vol. 14(3-4), pages 277-288, May.
  8. Foster, Edward & Sonnenschein, Hugo, 1970. "Price Distortion and Economic Welfare," Econometrica, Econometric Society, vol. 38(2), pages 281-97, March.
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  10. Brock, Philip L., 1988. "Investment, the current account, and the relative price of non-traded goods in a small open economy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 235-253, May.
  11. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
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  14. Lloyd, P. J., 1974. "A more general theory of price distortions in open economies," Journal of International Economics, Elsevier, vol. 4(4), pages 365-386, November.
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  16. Partha Sen & Stephen J. Turnovsky, 1988. "Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy," NBER Working Papers 2781, National Bureau of Economic Research, Inc.
  17. Findlay, Ronald & Wellisz, Stanislaw, 1976. "Project Evaluation, Shadow Prices, and Trade Policy," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 543-52, June.
  18. Casas, F. R., 1985. "Tariff protection and taxation of foreign capital: The welfare implications for a small country," Journal of International Economics, Elsevier, vol. 19(1-2), pages 181-188, August.
  19. Matsuyama, Kiminori, 1987. "Current account dynamics in a finite horizon model," Journal of International Economics, Elsevier, vol. 23(3-4), pages 299-313, November.
  20. Charles R. Frank Jr. & Kwang Suk Kim & Larry E. Westphal, 1975. "Foreign Trade Regimes and Economic Development: South Korea," NBER Books, National Bureau of Economic Research, Inc, number fran75-1, 07.
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  22. Anne O. Krueger, 1983. "Trade and Employment in Developing Countries, Volume 3: Synthesis and Conclusions," NBER Books, National Bureau of Economic Research, Inc, number krue83-1, 07.
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