The Choice of Trade Regime: Delayed Reform under Productivity Fluctuations and Cost of Structural Change

Despite both theoretical and observable advantages of free trade, a number of countries have stuck to a restricted trade regime. Apparently, the gap between the inward oriented economies and the "free trade" world has allowed to become huge before these economies turned to a more outward oriented trade policy. As a supplement to the existing explanations for the hesitation to change trade regime, we present a model where the international productivity development is uncertain.