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Growth, expectations and tariffs

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  • Seppo Honkapohja
  • Arja H. Turunen-Red
  • Alan D. Woodland

Abstract

We present a growth model of international trade in which expectations about profitability and growth influence innovation and investment. Adaptive learning dynamics determine transition paths for countries with differing structural parameters. Countries limiting trade by tariffs on imports of capital goods can experience gains in growth and perceived utility for a finite time, whereas the rest of the world is adversely affected. Asymmetric gains persist longer when structural advantages of the country applying tariffs are larger. Substantial differences in levels of innovation, output and utility can appear within our asymmetric country setting.

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  • Seppo Honkapohja & Arja H. Turunen-Red & Alan D. Woodland, 2016. "Growth, expectations and tariffs," Canadian Journal of Economics, Canadian Economics Association, vol. 49(4), pages 1441-1469, November.
    • Handle: RePEc:cje:issued:v:49:y:2016:i:4:p:1441-1469
    DOI: 10.1111/caje.12240
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    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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