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Liberalization of import restrictions on capital goods and the balance of payments

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  • Robert Tatum

Abstract

This paper examines the impact of capital import liberalization on the balance of payments when protection takes the form of a quota and when it takes the form of a tariff. Since tariff liberalization affects tax revenues, the analysis of tariff liberalization allows for a fiscal imbalance and a mechanism by which the fiscal imbalance is covered, namely an inflation tax. The analysis shows that the economy experiences a series of balance of payments deficits following trade liberalization, but an open capital account reduces the magnitude of these deficits.

Suggested Citation

  • Robert Tatum, 2010. "Liberalization of import restrictions on capital goods and the balance of payments," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 19(3), pages 385-419.
    • Handle: RePEc:taf:jitecd:v:19:y:2010:i:3:p:385-419
    DOI: 10.1080/09638199.2010.499688
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