Growing through trade: the role of foreign growth and domestic tariffs

  1. Carmen D. Álvarez Albelo 1
  2. Antonio Manresa 2
  3. Mónica Pigem Vigo 2
  1. 1 Universidad de La Laguna
    info

    Universidad de La Laguna

    San Cristobal de La Laguna, España

    ROR https://ror.org/01r9z8p25

  2. 2 Universitat de Barcelona
    info

    Universitat de Barcelona

    Barcelona, España

    ROR https://ror.org/021018s57

Journal:
Documentos de trabajo ( XREAP )

Year of publication: 2015

Issue: 4

Pages: 1

Type: Working paper

Abstract

This paper studies the role of trading partner' growth and a domestic import tariff in the possibility of growing through trade. To this purpose, a Ricardian model is developed in which a backward economy seeks to increase its long-run growth rate simply by trading with a faster growing partner. It is found that domestic growth may be either negatively affected or unaffected by a domestic import tariff, while it is always positively impacted by foreign growth. Furthermore, convergence in growth rate can emerge both with an import tariff and under free trade. Ours results are consistent with the empirical evidence.

Bibliographic References

  • Acemoğlu, D. and Ventura, J. (2002). ‘The world income distribution’, Quarterly Journal of Economics, 117(2), pp. 659-694.
  • Álvarez-Albelo, C.D., Manresa, A., and Pigem-Vigo, M. (2009). ‘The international trade as the sole engine of growth for an economy’, XREAP Working Paper 2009- 6. Retrieved July 9, 2015, from http://goo.gl/8vCfW6
  • Arora, V. and Vamvakidis, A. (2011). ‘China’s economic growth: International spillovers’, China & the World Economy, 19(5), pp. 31-46.
  • Arora, V. and Vamvakidis, A. (2006). ‘The impact of US economic growth on the rest of the world: How much does it matter?’, Journal of Economic Integration, 21(1), pp. 21-39.
  • Arora, V. and Vamvakidis. A. (2005a). ‘The implications of South African economic growth for the rest of Africa’, South African Journal of Economics, 73(2), pp. 229- 242.
  • Arora, V. and Vamvakidis, A. (2005b). ‘How much do trading partners matter for economic growth?’, IMF Staff Papers, 52(1), pp. 24-40.
  • Arrow, K.J. (1962). ‘The economic implications of learning by doing’, Review of Economic Studies, 29(3), pp. 155-173.
  • Calderón, C., Loayza, N. and Schmidt-Hebbel, K. (2004). ‘External conditions and growth performance’, Central Bank of Chile Working Paper No. 292.
  • Clements, M.A. and Williamson, J.G. (2004). ‘Why did the tariff-growth correlation change after 1950?’, Journal of Economic Growth, 9(1), pp. 5-46.
  • Connolly, M. and Yi, K.-M. (2009). ‘How much of the South Korea’s growth miracle can be explained by trade policy?’, Federal Reserve Bank of Philadelphia, Research Department, Working Paper 09-19.
  • Cooley, T.F. and Prescott, E.C. (1995). ‘Economic growth and business cycle’, in, Cooley, T.F. (ed.), Frontiers in Business Cycle Research, 1-38, Princeton: Princeton University Press.
  • DeJong, D. N. and Ripoll, M. (2006). ‘Tariffs and growth: an empirical exploration of contingent relationships’, The Review of Economics and Statistics, 88(4), pp. 625- 640.
  • Devereux, M.B. (1997). ‘Growth, specialization, and trade liberalization’, International Economic Review, 38(3), pp. 565-585.
  • Easterly, W. (2001). ‘The lost decades: Developing countries’ stagnation in spite of policy reform 1980-1998’, Journal of Economic Growth, 6(2), pp. 135-157.
  • Fadinger, H. and Fleiss, P. (2011). ‘Trade and the sectoral productivity’, The Economic Journal, 121(555), pp. 958-2011.
  • Gollin, D. (2002). ‘Getting income shares right’, Journal of Political Economy, 110(2), pp. 458-474.
  • Grossman, G.M. and Helpman, E. (1990). ‘Comparative advantage and long-run growth’, American Economic Review, 80(4), pp. 796-815.
  • Ji, L. and Seater, J.J. (2014). ‘The dance of the dynamics: The interplay of trade and growth’, paper presented at Seminar in the Department of Economics (March 26), Florida International University, Florida. Retrieved October 26, 2015 from http://goo.gl/IwbVyT
  • Lee, S.-F. (2011). ‘Tariff, growth and welfare’, Review of International Economics, 19(2), pp. 260-276.
  • Levine, R. and Renelt, D. (1992). ‘A sensitivity analysis of cross-country growth regressions’, American Economic Review, 82(4), pp. 942-963.
  • Madsen, J.B. (2009). ‘Trade barriers, openness, and economic growth’, Southern Economic Journal, 76(2), pp. 397-418.
  • Manresa, A. and Pigem-Vigo, M. (1999). ‘Difusión del crecimiento económico a través del comercio de bienes intermedios [Diffusion of economic growth through trade in intermediate goods]’, Información Comercial Española, 782, pp. 21-27. Retrieved July 9, 2015, from http://goo.gl/d0SuxB
  • Miroudot, S., Lanz, R. and Ragoussis, A. (2009). ‘Trade in intermediate goods and services’, OECD Trade Policy Papers, No. 93, OECD Publishing. http://dx.doi.org/10.1787/5kmlcxtdlk8r-en
  • Parente, S.L. and Prescott, E.C. (2000), Barriers to riches. Cambridge: MIP Press.
  • Rivera-Batiz, L.A. and Romer, P.M. (1991). ‘International trade with endogenous technological change’, European Economic Review, 35(4), pp. 971-1004.
  • Rodríguez, F. and Rodrik, D. (2001). ‘Trade policy and economic growth: A skeptical guide to the cross-national evidence’, NBER Macroeconomic Annual 2000, 5, pp. 261-338.
  • Sachs, J.D. and Warner, A. (1995). ‘Economic reform and the process of global integration’, Brooking Papers of Economic Activity, 1, pp. 1-95.
  • Singh, T. (2010). ‘Does international trade cause economic growth? A survey’, The World Economy, 11, 1517-1564.
  • Ventura, J. (1997). ‘Growth and interdependence’, Quarterly Journal of Economics, 112(1), pp.57-84.
  • Wacziarg, R. and Welch, K.H. (2008). ‘Trade liberalization and growth: New evidence’, The World Bank Review, 22(2), pp.187-231.
  • World Bank Data. Tariff rate, applied, weighted mean, all products (%). Retrieved July 9, 2015, from http://goo.gl/mh01JD