Working Paper: NBER ID: w31378
Authors: George A. Alessandria; Oscar I. Avila-Montealegre
Abstract: We study empirically and theoretically the dynamic effects of the unilateral reduction in import tariffs undertaken by Colombia from 1989-1993, with a particular emphasis on the transition and including any anticipation effects. We develop an asymmetric two-country, multi-sector heterogeneous firm model with a dynamic exporting decision, input-output linkages, capital accumulation, and trade in financial assets. The model is calibrated to match Colombian exporter dynamics, sectoral trade openness, tariffs, imbalances, and input-output linkages in the late 1980s. We introduce an anticipated phased out reform into the model and relate the predicted path of sectoral and aggregate activity to the data. Our multi-sector dynamic exporting model predicts much larger gains from these reforms than models that abstract from exporter dynamics, sectoral heterogeneity, trade in financial assets, or capital accumulation. It also captures the key macroeconomic features in terms of a temporary expansion in growth featuring a large, but short-lived investment boom financed by international borrowing, more so when the reforms are expected to be short-lived.
Keywords: No keywords provided
JEL Codes: F15; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reduction of tariffs (F13) | increased trade (F19) |
| increased trade (F19) | investment decisions (G11) |
| investment decisions (G11) | economic activity (E20) |
| reduction of tariffs (F13) | economic growth (O49) |
| reduction of tariffs (F13) | welfare gains (D69) |
| reduction of tariffs (F13) | long-run consumption increase (D15) |
| lower tariffs on capital goods (F19) | welfare gain (D69) |
| lower tariffs on capital goods (F19) | long-run consumption increase (D15) |
| speed of tariff reductions (F13) | magnitude of economic benefits (F69) |
| ability to borrow and lend internationally (F34) | benefits of the reform (E69) |