Trade Liberalization and Investment in a Multilateral Framework

Joseph Francois, Brad McDonald and Håkan Nordström

No 1411, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper explores trade policy and investment linkages in a multicountry framework. This is done under alternative steady-state closure rules linking trade to consumption, production, and investment, and emphasizing the general equilibrium nature of capital accumulation mechanisms. When policy shocks are capital friendly, induced investment may be greater than suggested by current savings rates. As a result, multiplier-type analysis can be very misleading. The importance and direction of this magnification hinges critically on the sensitivity of savings rates with respect to real returns. As illustration, we offer a numerical assessment of the Uruguay Round, highlighting such linkages.

Keywords: Trade and Capital Accumulation; Trade and Investment (search for similar items in EconPapers)
JEL-codes: F13 F4 F47 (search for similar items in EconPapers)
Date: 1996-06
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Citations: View citations in EconPapers (2)

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