ON THE OUTPUT EFFECTS OF BARRIERS TO TRADE

We study the macroeconomic effects of international trade policy by integrating a Hecksher-Ohlin trade model into an optimal-growth framework. The model predicts that a more open economy will have higher factor productivity. Furthermore, there is a "selective development trap" to which countries may or may not converge, depending on policy. Income at the development trap falls as trade barriers increase. Hence, cross-country differences in barriers to trade may help explain the dispersion of per capita income observed across countries. The effects are quantified, and we show that protectionism can explain a relevant fraction of TFP and long-run income differentials across countries. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.