Tariff liberalization policy and financial restrictions

Joshua Aizenman

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


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 adjustment process under free and restricted convertibility of foreign assets in a regime where the commercial exchange rate is pegged. It is shown that starting from an equilibrium characterized by significant scarcity of foreign assets, a policy of simultaneous liberalization of both current and capital account would cause a larger drop in domestic goods prices than would the short-run effects of tariff liberalization alone. In such an economy the effect of liberalization of capital controls is to generate current account surplus, whereas tariff liberalization generates current account deficit.

Original languageEnglish
Pages (from-to)241-255
Number of pages15
JournalJournal of International Economics
Issue number3-4
StatePublished - 1 Jan 1985
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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