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Tariff, Growth, and Welfare

  • Lee, Shun-Fa

We develop a two-country (Home and Foreign) by two-good (consumption good and investment good) by one factor (capital) endogenous growth model with international knowledge spillover to study the relationship between an import tariff and economic growth and welfare. First, unlike the past literature, we do not need to make an assumption such that the growth rates between countries are identical in a balanced growth path (BGP). Second, we show that there exists a unique and saddle-point BGP with both countries being incompletely specialized. Third, a higher import tariff on the consumption good in the domestic country may boost (reduce) the rate of economic growth when the foreign (domestic) country has an absolute advantage in the investment good. Finally, a rise in the tariff rate by one country may improve world welfare under some parameter spaces.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27486.

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Date of creation: 04 Nov 2010
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Handle: RePEc:pra:mprapa:27486
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  11. Naito, Takumi, 2006. "Tariff and tax reform: Dynamic implications," Journal of International Economics, Elsevier, vol. 68(2), pages 504-517, March.
  12. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
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  16. Nakanishi, Noritsugu, 1997. "Welfare analysis of tariff change with and without international transfers," Journal of International Economics, Elsevier, vol. 42(1-2), pages 247-248, February.
  17. Benhabib, J. & Meng, Q. & Nishimura, K., 1999. "Indeterminacy Under Constant Returns to Scale in Multisector Economies," Working Papers 99-17, C.V. Starr Center for Applied Economics, New York University.
  18. Wolfgang Keller, 2002. "Geographic Localization of International Technology Diffusion," American Economic Review, American Economic Association, vol. 92(1), pages 120-142, March.
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  25. Nishimura, Kazuo & Venditti, Alain, 2002. "Intersectoral Externalities and Indeterminacy," Journal of Economic Theory, Elsevier, vol. 105(1), pages 140-157, July.
  26. Chen, Been-Lon & Lee, Shun-Fa, 2007. "Import Tariffs and Growth in a Model with Habits," MPRA Paper 27667, University Library of Munich, Germany.
  27. Ventura, Jaume, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 57-84, February.
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  29. O'Rourke, Kevin Hjortshøj, 1997. "Tariffs and Growth in the Late Nineteenth Century," CEPR Discussion Papers 1700, C.E.P.R. Discussion Papers.
  30. Fukushima, Takashi & Kim, Namdoo, 1989. "Welfare improving tariff changes : A case of many goods and countries," Journal of International Economics, Elsevier, vol. 26(3-4), pages 383-388, May.
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