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Is Agricultural Productivity Growth Good for Industrialization? Infrastructures and the Welfare Maximizing Tax Rate

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  • Kamei, Keita
  • Sasaki, Hiroaki

Abstract

This paper develops a dynamic Ricardian trade model that incorporates productive infrastructures into the manufacturing sector financed by tax. We investigate the relationship between the timing of opening trade and total welfare. We also compare the two kinds of total welfare: the total welfare that a country obtains by closing international trade until it has a comparative advantage in manufacturing and then engaging in free trade and the total welfare that the country obtains by specializing in agriculture according to the law of comparative advantage from the beginning. The main results are as follows: (1) there is the optimal tax rate maximizing the total welfare; (2) an increase in agricultural productivity can accelerate the timing of opening trade, which, however, does not necessarily improve the total welfare; and (3) the total welfare under specialization in manufacturing can be higher than that under specialization in agriculture depending on conditions.

Suggested Citation

  • Kamei, Keita & Sasaki, Hiroaki, 2014. "Is Agricultural Productivity Growth Good for Industrialization? Infrastructures and the Welfare Maximizing Tax Rate," MPRA Paper 53606, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:53606
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    productive infrastructure; industrialization; timing of opening trade; agricultural productivity;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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