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

Keita Kamei and Hiroaki Sasaki

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: productive infrastructure; industrialization; timing of opening trade; agricultural productivity (search for similar items in EconPapers)
JEL-codes: F10 F43 O14 (search for similar items in EconPapers)
Date: 2014-02-11
New Economics Papers: this item is included in nep-agr, nep-int, nep-pbe and nep-sog
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:53606

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