Productive factors such as human and phyaical capital are accumulated and trade can affect the steady-state levels of such factors. Consequently, trade
liberalization will have dynamic effects on output and welfare as the economy
moves to its new steady state, in addition to its usual static effects. The
output impact of this dynamic effect is measurable and appears to be quite
large. The welfare impact of this dynamic effect is also measurable. The size
of this dynamic gain from trade depends on the importance of external scale
economies.
*Published:
Journal of Political Economy, Vol. 100, issue 1, pp. 162-174, 1992.
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