On the dynamics of trade reform

Empirical studies of trade reforms suggest that these reforms have a surpri singly small impact on a country's industrial configuration. This industria l structure inertia is difficult to rationalize in standard trade models. T his paper develops a two-sector industry dynamics model in which industrial composition inertia arises naturally. The model is then used to study the consequences of different types of trade reforms (e.g. permanent, temporary , gradual, pre-announced) on investment, employment composition and income distribution. (C) 2000 Elsevier Science BN. All rights reserved.