DP3486 How Trade Policy Affects Technology Adoption and Productivity

Author(s): Berthold Herrendorf, Arilton Teixeira
Publication Date: August 2002
Keyword(s): coalition, quota, tariff, technology adoption, total factor productivity
JEL(s): E00, E40
Programme Areas: International Macroeconomics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3486

How does trade policy a affect technology adoption, total factor productivity (TFP henceforth), and per capita income? To study this question we construct a dynamic general equilibrium model of a small open economy in which a coalition of skilled workers chooses the technology. We obtain three results. First, under free trade and under a tariff the best technology is used and TFP and per capita income are as large as is possible. Second, under a quota the best technology may or may not be used; in both cases per capita income and TFP are smaller than under free trade and a tariff. Third, average growth rates are the same across all three trade policy regimes but abandoning a quota leads to a short?term increase in growth rates.