TY - JOUR AU - Goulder,Lawrence H. AU - Eichengreen,Barry TI - Trade Liberalization in General Equilibrium: Intertemporal and Inter-Industry Effects JF - National Bureau of Economic Research Working Paper Series VL - No. 2965 PY - 1989 Y2 - May 1989 UR - http://www.nber.org/papers/w2965 L1 - http://www.nber.org/papers/w2965.pdf N1 - Author contact info: Lawrence H. Goulder Department of Economics Landau Economics Building 328 Stanford University Stanford, CA 94305 Tel: 650/723-3706 Fax: 650/725-5702 E-Mail: goulder@stanford.edu Barry Eichengreen Department of Economics University of California, Berkeley 549 Evans Hall 3880 Berkeley, CA 94720-3880 Tel: 510/642-2772 Fax: 510/643-0926 E-Mail: eichengr@econ.Berkeley.edu AB - This paper uses a dynamic computable general equilibrium model to simulate the effects of unilateral reductions by the U.S. in tariffs and "voluntary" export restraints (VER's). We consider 50 percent cuts in tariffs and in ad valorem VER equivalents, separately and in combination. The model features intertemporal optimization by households and firms, explicit adjustment dynamics, an integrated treatment of the current and capital accounts of the balance of payments, and industry disaggregation. Central findings include: (1) VER's are considerably more significant than tariffs in terms of the magnitude of the macroeconomic effects induced by their reduction; (2) while VER reductions enhance domestic welfare, unilateral tariff cuts reduce domestic welfare (as a consequence of U.S. monopsony power and associated adverse terms of trade effects); (3) international capital movements critically regulate the responses of the U.S. and foreign economies to these trade initiatives and produce significant differences between short and long-run effects; and (4) effects differ substantially across industries. Together, these findings indicate that simulation analyses that disregard international capital movements, adjustment dynamics, and industry differences may generate seriously misleading results. ER -