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On the robustness of short run gains from trade reform

Rees, Lucy; Rod, Tyers


The long run gains from reductions in distortionary tariffs are robustly positive in neoclassical economies. In the short run, however, depending on the prevailing exchange rate and tax regimes, a combination of producer price deflation and nominal wage stickiness can cause trade liberalisation to be contractionary. Because trade liberalisation, taken alone, reduces the home prices of foreign goods, there is a substitution away from home produced goods and a real depreciation. Under the...[Show more]

CollectionsANU Research Publications
Date published: 2004
Type: Working/Technical Paper


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