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On the Static and Dynamic Costs of Trade Restrictions

Author

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  • Charles van Marrewijk

    (Department of Economics, Erasmus University Rotterdam)

  • Koen Berden

    (Erasmus University Rotterdam)

Abstract

We analyze the costs of trade restrictions for a small developing economy. Capital goods are only introduced on the market if it is profitable to do so. The economy evolves to a balanced growth path in which income, welfare, and the share of introduced capital goods increase if trade restrictions fall. The adjustment path is asymmetric: an increase in trade restrictions will slow-down economic growth, while a decrease may give rise to a rapid catch-up process. The static costs of trade restrictions are smaller than the dynamic costs if, and only if, it changes the share of introduced capital goods.

Suggested Citation

  • Charles van Marrewijk & Koen Berden, 2004. "On the Static and Dynamic Costs of Trade Restrictions," School of Economics and Public Policy Working Papers 2004-06, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2004-06
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    File URL: https://media.adelaide.edu.au/economics/papers/doc/wp2004-06.pdf
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    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
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    5. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
    6. Koen G. Berden & Charles van Marrewijk, 2001. "Maintenance Costs, Obsolescence, and Endogenous Growth," Tinbergen Institute Discussion Papers 01-060/2, Tinbergen Institute.
    7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    8. van Marrewijk, Charles, 1999. "Capital Accumulation, Learning, and Endogenous Growth," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 453-475, July.
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    Cited by:

    1. Charles van Marrewijk, 2005. "Basic Exchange Rate Theories," Tinbergen Institute Discussion Papers 05-024/2, Tinbergen Institute.
    2. Van Marrewijk, Charles & Berden, Koen G., 2007. "On the static and dynamic costs of trade restrictions for small developing countries," Journal of Development Economics, Elsevier, vol. 84(1), pages 46-60, September.

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    More about this item

    Keywords

    growth; development; static and dynamic costs; trade restrictions; new goods;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • F - International Economics
    • O - Economic Development, Innovation, Technological Change, and Growth

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