Growth,expectations and tariffs |
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| Authors: | Seppo Honkapohja Arja H. Turunen‐Red Alan D. Woodland |
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| Affiliation: | 1. Bank of Finland;2. Department of Economics and FinanceUniversity of New Orleans;3. School of EconomicsUniversity of New South Wales |
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| Abstract: | We present a growth model of international trade in which expectations about profitability and growth influence innovation and investment. Adaptive learning dynamics determine transition paths for countries with differing structural parameters. Countries limiting trade by tariffs on imports of capital goods can experience gains in growth and perceived utility for a finite time, whereas the rest of the world is adversely affected. Asymmetric gains persist longer when structural advantages of the country applying tariffs are larger. Substantial differences in levels of innovation, output and utility can appear within our asymmetric country setting. |
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