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Agglomeration and non-agglomeration countries and the growth effects of protectionist trade policies

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  • Wataru Johdo

    (Tokyo Keizai University)

Abstract

The objective of this study is to examine the influence of unilateral tariffs on the world growth rate within a two-country endogenous growth model. In this model, firms are mobile internationally, while knowledge spillover in research and development (R&D) is local. In our model, four aspects are emphasized: the positive effects of a unilateral increase in one-country tariffs, namely the intrasector substitution effect and the international redistribution effect, and the negative effects of one-country tariff increases, namely the intersector substitution effect and the real income effect. Accordingly, the net growth effect of a unilateral tariff increase in one country is contingent upon the relative strength of these four conflicting pressures. The primary conclusion of this analysis is as follows: a unilateral tariff increase in the agglomeration country has the effect of increasing the world growth rate through the greater concentration of firms in that country. This finding is contrary to the prevailing view in the existing endogenous growth literature, where a negative growth effect is typically observed as the standard result.

Suggested Citation

  • Wataru Johdo, 2025. "Agglomeration and non-agglomeration countries and the growth effects of protectionist trade policies," International Economics and Economic Policy, Springer, vol. 22(1), pages 1-15, February.
    • Handle: RePEc:kap:iecepo:v:22:y:2025:i:1:d:10.1007_s10368-024-00645-5
    DOI: 10.1007/s10368-024-00645-5
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    More about this item

    Keywords

    Firm Relocation; Tariff; Local knowledge spillover; Growth; R&D;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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