Reversible Reforms With Irreversible Capital: The Investment Response to Imperfectly Credible Trade Liberalisation

Richard Mash ()

Working Papers Series from Centre for the Study of African Economies, University of Oxford

Abstract: The paper consides the irreversible investment response to trade liberalisation when agents perceive there to be a positive probability that the liberalisation may be reversed. It is shown that even with full credibility the aggregate investment response may be weak since investment will collapse in the unfavoured sector as a result of the change in domestic relative prices.

Keywords: INVESTMENTS; TRADE LIBERALIZATION (search for similar items in EconPapers)
JEL-codes: F15 F21 F14 (search for similar items in EconPapers)
Date: 1997

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