Gradual Tariff Adjustment with Imperfect Capital Mobility between Countries
نویسندگان
چکیده
s: In this paper, our focus is to see the impact of imperfect international capital mobility on tariff adjustment process between two countries. Assuming complete specialization of each country, the results show that the existence of an imperfect international capital market may trigger a gradual tariff adjustment. That is, when it takes time and causes idle capital in reallocating capital between countries, tariff negotiations between two countries may end up with a different tariff combination, rather than reaching a long run welfare maximizing tariff combination immediately at the first period. The results also include where immediate adjustment is the Nash bargaining negotiation result. The model also shows that the short run tariff rate of a country may be even lower that its long run tariff rate, i.e., the first period tariff rate is lower than the long run welfare maximizing tariff rate that is imposed at the second period.
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