Tariffs and Sectoral Adjustments in an Open Economy
Stephen J. Turnovsky
This paper analyzes the impact of a tariff on sectoral adjustments in an
economy which produces two traded consumption goods, one of which is exported,
and a non-traded investment good. The importance of sectoral capital
intensities is emphasized. In particular, the qualitative dynamic adjustment
depends upon the relative capital intensities of the import-competing
consumption good sector and the non-traded investment good sector. Sectoral
labor allocation effects are analyzed and the long-run effect on aggregate
capital accumulation is shown to depend upon the relative capital intensities
of the import and export sectors. Temporary as well as permanent tariffs are
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