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Growth, Specialization, and Trade Liberalization

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  • Michael Devereux

Abstract

This paper examines a two-way interaction between trade liberalization and economic growth. Through dynamic increasing returns to specialization, international trade can increase world growth rates. But growth, through specialization , alters patterns of comparative advantage, changing the incentives to levy tariffs in a dynamic tariff game between governments. Two types of equilibria are analyzed. In one, average growth rates are low, tariffs are high and rising, the ratio of exports to income (the trade ratio) is low, and falls to zero asymptotically. In the other, growth rates are high, tariffs are low and falling, the trade ratio is higher, and rises over time. The conditions under which each type of equilibrium will be observed are investigated.

Suggested Citation

  • Michael Devereux, 1990. "Growth, Specialization, and Trade Liberalization," Working Papers 786, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:786
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    Cited by:

    1. Carsten Kowalczyk & Raymond Riezman, 2009. "Trade Agreements," CESifo Working Paper Series 2660, CESifo Group Munich.
    2. Oetzel, Jennifer M. & Banerjee, Sudeshna Ghosh, 2008. "A case of the tortoise versus the hare? Deregulation process, timing, and firm performance in emerging markets," International Business Review, Elsevier, vol. 17(1), pages 54-77, February.
    3. Chisik, Richard, 2003. "Gradualism in free trade agreements: a theoretical justification," Journal of International Economics, Elsevier, vol. 59(2), pages 367-397, March.
    4. Jun Ishii & Kei-Mu Yi, 1997. "The growth of world trade," Research Paper 9718, Federal Reserve Bank of New York.
    5. Carmen D. Álvarez-Albelo & Antonio Manresa & Monica Pigem-Vigo, 2015. "Growing through trade: the role of foreign growth and domestic tariffs," Working Papers XREAP2015-04, Xarxa de Referència en Economia Aplicada (XREAP), revised Nov 2015.
    6. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc.
    7. MARTINS, Ana Paula, 2015. "Increasing Returns And Endogenous Growth: Market Size And Taste For Variety," Academica Science Journal, Economica Series, Dimitrie Cantemir University, Faculty of Economical Science, vol. 1(5), pages 3-33, June.
    8. Zissimos, Ben, 2007. "The GATT and gradualism," Journal of International Economics, Elsevier, vol. 71(2), pages 410-433, April.
    9. Sauré, Philip, 2014. "Domestic policies in self-enforcing trade agreements," European Economic Review, Elsevier, vol. 68(C), pages 19-30.
    10. Maystre, Nicolas & Olivier, Jacques & Thoenig, Mathias & Verdier, Thierry, 2014. "Product-based cultural change: Is the village global?," Journal of International Economics, Elsevier, vol. 92(2), pages 212-230.
    11. Maoz, Yishay D. & Peled, Dan & Sarid, Assaf, 2011. "Trade agreements, bargaining and economic growth," Journal of Macroeconomics, Elsevier, vol. 33(1), pages 92-101, March.
    12. Furusawa, Taiji & Lai, Edwin L. -C., 1999. "Adjustment costs and gradual trade liberalization," Journal of International Economics, Elsevier, vol. 49(2), pages 333-361, December.
    13. Opp, Marcus M., 2010. "Tariff wars in the Ricardian Model with a continuum of goods," Journal of International Economics, Elsevier, vol. 80(2), pages 212-225, March.
    14. Devereux, Michael B., 1999. "Growth and the dynamics of trade liberalization," Journal of Economic Dynamics and Control, Elsevier, vol. 23(5-6), pages 773-795, April.
    15. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, Elsevier.
    16. Robert Staiger, 1994. "A Theory of Gradual Trade Liberalization," International Trade 9410003, EconWPA, revised 21 Oct 1994.
    17. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
    18. Hiroshi Daisaka & Taiji Furusawa, 2014. "Dynamic Free Trade Networks: Some Numerical Results," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 469-487, August.

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