Liberalization of import restrictions on capital goods and the balance of payments

Robert Tatum ()

The Journal of International Trade & Economic Development, 2010, vol. 19, issue 3, 385-419

Abstract: This paper examines the impact of capital import liberalization on the balance of payments when protection takes the form of a quota and when it takes the form of a tariff. Since tariff liberalization affects tax revenues, the analysis of tariff liberalization allows for a fiscal imbalance and a mechanism by which the fiscal imbalance is covered, namely an inflation tax. The analysis shows that the economy experiences a series of balance of payments deficits following trade liberalization, but an open capital account reduces the magnitude of these deficits.

Keywords: liberalization; imported input; quota; tariff; payments balance (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1080/09638199.2010.499688

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