Import Substitution and Capital Accumulation

E. Young Song ()

Canadian Journal of Economics, 1993, vol. 26, issue 3, 670-87

Abstract: This paper examines tariffs and other policies designed to protect the domestic investment good industry in a small open economy. In a dynamic two-sector model, where a nontraded investment good competes with an imported investment good, the paper identifies two channels through which commercial policies affect the domestic sector: one through the standard substitution of the domestic for the foreign investment good and the other through their effect on Tobin's q and the aggregate investment demand. If a commercial policy decreases investment sufficiently, it can hurt the domestic industry in both the short and the long run.

Date: 1993
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