Growth, Expectations, And Tariffs
The authors study a many country endogenous growth model in which decisions about innovation and new investment are influenced by growth expectations. Adaptive learning dynamics determine country-specific short run transition paths. Countries differ in basic structural parameters and may impose tariffs on imports of capital goods. Numerical experiments illustrate adjustment dynamics that follow the use of tariffs. They show that countries that limit trade in capital goods can experience dynamic gains both in growth and utility and that such gains persist the longer the larger the structural advantages of the region that applies tariffs.