On the static and dynamic costs of trade restrictions for small developing countries |
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Authors: | Charles Van Marrewijk Koen G Berden |
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Institution: | Erasmus University Rotterdam and Tinbergen Institute, The Netherlands |
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Abstract: | We analyze the costs of trade restrictions for a small developing economy (LDC). Intermediate goods invented elsewhere are only introduced on the LDC market if it is profitable to do so. The LDC economy evolves to a balanced growth path in which income, welfare, and the share of available goods increase if trade restrictions fall. The adjustment path is asymmetric: an increase in trade restrictions leads to a slow-down of economic growth, while a decrease may lead to a rapid catch-up process. The dynamic costs of trade restrictions are in general substantially larger than the static costs. |
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Keywords: | E F O |
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