Tariff Liberalization Policy and Financial Restrictions

Joshua Aizenman

No 1253, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The purpose of this paper is to assess how restrictions on capital mobility affect adjustment to a tariff liberalization policy. This is done by comparing the adlustment process under free and restricted convertibility of foreign assets in a regime where the commercial exchange rate is pegged. It is shown that trade liberalization causes in the short run a larger drop in domestic goods prices and a smaller current account deficit in a regime with restricted convertibility. Similar results apply also for the long-run current account effects of the liberalization: they are smaller under financial restrictions.

Date: 1983-12
Note: ITI IFM
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Published as Aizenman, Joshua. "Tariff Liberalization Policy and FInancial Restrictions." Journal of International Economics, Vol. 19, (1985), pp. 241-255.

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