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Is Agricultural Productivity Growth Good for Industrialization? Infrastructures and the Welfare Maximizing Tax Rate

  • Kamei, Keita
  • Sasaki, Hiroaki

This paper develops a dynamic Ricardian trade model that incorporates productive infrastructures into the manufacturing sector financed by tax. We investigate the relationship between the timing of opening trade and total welfare. We also compare the two kinds of total welfare: the total welfare that a country obtains by closing international trade until it has a comparative advantage in manufacturing and then engaging in free trade and the total welfare that the country obtains by specializing in agriculture according to the law of comparative advantage from the beginning. The main results are as follows: (1) there is the optimal tax rate maximizing the total welfare; (2) an increase in agricultural productivity can accelerate the timing of opening trade, which, however, does not necessarily improve the total welfare; and (3) the total welfare under specialization in manufacturing can be higher than that under specialization in agriculture depending on conditions.

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File URL: http://mpra.ub.uni-muenchen.de/53606/1/MPRA_paper_53606.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 53606.

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Date of creation: 11 Feb 2014
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Handle: RePEc:pra:mprapa:53606
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  1. Leonid V. Azarnert, 2014. "Agricultural Exports, Tariffs and Growth," CESifo Working Paper Series 4583, CESifo Group Munich.
  2. Hiroaki Sasaki, 2008. "International Trade And Industrialization With Capital Accumulation And Skill Acquisition," Manchester School, University of Manchester, vol. 76(4), pages 464-486, 07.
  3. Redding, Stephen, 1999. "Dynamic Comparative Advantage and the Welfare Effects of Trade," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 15-39, January.
  4. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
  5. Jing Jun Chang & Been-Lon Chen & Mei Hsu, 2006. "Agricultural Productivity and Economic Growth: Role of Tax Revenues and Infrastructures," Southern Economic Journal, Southern Economic Association, vol. 72(4), pages 891–914, April.
  6. Spilimbergo, Antonio, 2000. " Growth and Trade: The North Can Lose," Journal of Economic Growth, Springer, vol. 5(2), pages 131-46, June.
  7. Jonathan Temple, 2005. "Dual economy models: a primer for growth economists," Bristol Economics Discussion Papers 05/574, Department of Economics, University of Bristol, UK.
  8. Colin Kirkpatrick & Armando Barrientos, 2004. "The Lewis Model After 50 Years," Manchester School, University of Manchester, vol. 72(6), pages 679-690, December.
  9. Kar-Yiu, Wong & Chong K. Yip, 1998. "Industrialization, Economic Growth, and International Trade," Departmental Working Papers _092, Chinese University of Hong Kong, Department of Economics.
  10. Matsuyama, Kiminori, 1992. "Agricultural productivity, comparative advantage, and economic growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 317-334, December.
  11. Xiaobing Wang & Jenifer Piesse, 2013. "The Micro-Foundations Of Dual Economy Models," Manchester School, University of Manchester, vol. 81(1), pages 80-101, 01.
  12. Toru Kikuchi, 2004. "Agricultural Productivity, Business Services, and Comparative Advantage," Open Economies Review, Springer, vol. 15(4), pages 375-383, October.
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