Working Paper: CEPR ID: DP3486
Authors: Berthold Herrendorf; Arilton Teixeira
Abstract: How does trade policy a affect technology adoption, total factor productivity (TFP henceforth), and per capita income? To study this question we construct a dynamic general equilibrium model of a small open economy in which a coalition of skilled workers chooses the technology. We obtain three results. First, under free trade and under a tariff the best technology is used and TFP and per capita income are as large as is possible. Second, under a quota the best technology may or may not be used; in both cases per capita income and TFP are smaller than under free trade and a tariff. Third, average growth rates are the same across all three trade policy regimes but abandoning a quota leads to a short?term increase in growth rates.
Keywords: Quota; Tariff; Technology Adoption; Total Factor Productivity; Vested Interest Groups
JEL Codes: E00; E40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade policies (F13) | optimal technology use (O33) |
| optimal technology use (O33) | TFP (F16) |
| TFP (F16) | per capita income (D31) |
| trade policies (F13) | TFP (F16) |
| trade policies (F13) | per capita income (D31) |
| quotas (C80) | lower average TFP (D24) |
| quotas (C80) | lower per capita income (E25) |
| quota to free trade or tariffs (F13) | short-term increase in growth rates (O42) |