Transition Dynamics and Trade Policy Reform in Developing Countries

This paper emphasizes the relevance of classical transition dynamics for trade policy, particularly for developing countries. The empirical evidence from cross-country growth regressions points to important transitional growth effects related to trade policy reforms. The paper employs a simple growth model to examine these effects, formally developing the transitional dynamics and contrasting policy reforms in countries near steady state (developed countries) with countries far from steady state (developing). Policy reforms that appear identical in a static or steady state framework can have a substantially greater impact on developing countries, once transitional accumulation effects have been accounted for.