Tariff Liberalization Policy and Financial RestrictionsJoshua Aizenman
NBER Working Paper No. 1253 (Also Reprint No. r0699) The purpose of this paper is to assess how restrictions on capital mobility affect adjustment to a tariff liberalization policy. This is done by comparing the adlustment process under free and restricted convertibility of foreign assets in a regime where the commercial exchange rate is pegged. It is shown that trade liberalization causes in the short run a larger drop in domestic goods prices and a smaller current account deficit in a regime with restricted convertibility. Similar results apply also for the long-run current account effects of the liberalization: they are smaller under financial restrictions.
Published: Aizenman, Joshua. "Tariff Liberalization Policy and FInancial Restrictions." Journal of International Economics, Vol. 19, (1985), pp. 241-255. This paper is available as PDF (135 K) or via email.
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