Research Discussion Papers, Bank of Finland
No 9/2011:
Growth, expectations and tariffs
Seppo Honkapohja ()
, Arja H Turunen ()
and Alan D Woodland
Abstract: We study a many-country endogenous growth model in which
decisions about innovation and new investment are influenced by growth
expectations. Adaptive learning dynamics determine the country-specific
short-run transition paths. The countries differ in basic structural
parameters and may impose tariffs on imports of capital goods. Numerical
experiments illustrate the adjustment dynamics that follow the use of
tariffs. We show that countries that limit trade in capital goods can
experience dynamic gains both in growth and in utility and that such gains
persist longer the larger the structural advantages of the region that
applies tariffs. Substantial differences in levels of innovation,
consumption, output and utility can appear, and asymmetries in economic
outcomes that were present before trade restrictions are made more
severe.
Keywords: endogenous growth; expectations; learning; short-run dynamics; tariffs; complementary capital goods; (follow links to similar papers)
JEL-Codes: F15; F43; (follow links to similar papers)
52 pages, April 20, 2011
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