Trade liberalisation with costly adjustment

Alvaro Forteza () and Rossana Patrón

No 901, Documentos de Trabajo (working papers) from Department of Economics - dECON

Abstract: This paper discusses the welfare effects of trade in a Heckscher-Ohlin model of trade with costs of adjustment. The paper analyses the efficiency and the distributional effects of eliminating a tariff in a formerly protected sector. The tariff can be eliminated at the onset or after a while. In case of postponing the elimination of the tariff, the government may pre-announce the policy change or may not do it and surprise the private sector. It is shown that while large adjustment costs reduce the efficiency gains from trade liberalisation, small to moderate adjustment costs may raise the efficiency gains from a pre-announced liberalisation. The (net) adjustment costs reduce the welfare gains and losses of owners of production factors from a sudden unanticipated liberalisation. The policy risk is partially shifted towards owners of firms. The distributional effects of trade liberalisations are more complex when the policy is pre-announced. The adjustment costs may increase the gains and losses of owners of the production factors, for small and moderate levels. Also, the announcement that the tariff will be eliminated affects the value of the firms, and when the adjustment cost are not high it may raise rather than reduce the value of the firms in the formerly protected sector.

JEL-codes: F11 F13 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2001-12
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hdl.handle.net/20.500.12008/1939 (application/pdf)

Related works:
Journal Article: Trade Liberalisation with Costly Adjustment (2003)
Journal Article: Trade Liberalisation with Costly Adjustment (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ude:wpaper:0901

Access Statistics for this paper

More papers in Documentos de Trabajo (working papers) from Department of Economics - dECON Contact information at EDIRC.
Bibliographic data for series maintained by Andrea Doneschi () and ().