On the growth effects of barriers to trade

Alberto Trejos and Pedro Cavalcanti Ferreira

No 353, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: We study the macroeconomic effects of international trade policy by integrating a Hecksher-Ohlin trade model into an optimal-growth framework. The model predicts that an open economy will have higher factor productivity and faster growth. Also, under protectionist policies there may be 'development traps,' or additional steady states with low income. In the last case, higher tariffs imply lower incomes, so that the large cross-country differences in barriers to trade may explain part of the huge dispersion of per capita income observed across countries. The model simulation shows that the link between trade and macroeconomic performance may be quantitatively important.

Date: 1999-09-22
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:353

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