PHASING IN AND PHASING OUT PROTECTIONISM WITH COSTLY ADJUSTMENTS OF LABOUR

We study the dynamics of optimal trade policy in a model with costly inter-sectoral adjustment of labour, where migrants pay less than the marginal social cost of migration. If workers have rational expectations, a future tariff has an announcement effect on the current migration decision. If the government is able to commit itself to future policy, the optimal trajectory involves phasing in and then phasing out protection of the dying sector. This contrasts with recommendations of gradual liberalization. Without the ability to make commitments, the equilibrium policy begins with and maintains free trade.


Issue Date:
1993
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/51112
Total Pages:
37
Series Statement:
Working Paper
93-6




 Record created 2017-04-01, last modified 2017-08-25

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