Tariffs, Endogenous Growth, and the Direction of Capital Flows

Wataru Johdo

Wataru Johdo, Faculty of Economics, Tokyo Keizai University, 1-7-34 Minamicho, Kokubunji-shi, Tokyo, 185-8502, Japan, Tel: +81-042-328-7937 johdo@tku.ac.jp

JEL Classification: E2; F1; F2; F43

Abstract

This paper incorporates tariffs into a two-country endogenous growth model to analyze the growth effects of a unilateral increase in a tariff rate in each country given global knowledge spillovers in research and development. This paper shows that a unilateral increase in the tariff rate of one country lowers the world rate of growth under certain conditions. In addition, this paper shows that if the home country’s initial capital stock is smaller (larger) than the foreign country’s initial capital stock, then net capital flows occur from the foreign (home) country to the home (foreign) country.

Keywords:

Tariff, Knowledge spillover, Industrial location, Growth, R&D investment

Acknowledgments

The author is grateful to an anonymous referee for many valuable comments and suggestions that significantly improved the article. Financial support by Tezukayama University and Tokyo Keizai University is gratefully acknowledged.

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