FIRM RESTRUCTURING AND THE OPTIMAL SPEED OF TRADE REFORM

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Abstract
We study the consequences and optimality of alternative speeds of trade liberalization when investment (restructuring) activities help firms learn their true level of efficiency and determine survival prospects In contrast to the existing literature, we find that a gradual trade reform might be preferred when authorities are more preoccupied with the longer term. We also show that costs of business closures have an ambiguous impact on the optimal pace of liberalization.

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