Abstract
We analyze how trade policy and aid affect poverty and economic development in a dynamic optimizing model that features a full array of imports (intermediates, consumer goods, and capital goods), transport and distribution costs, sector-specific capital, public investment in social and physical infrastructure, learning externalities, and a dualistic labor market. Our main finding is that policy packages that combine an escalated structure of protection with an escalated structure of export promotion score best; there is no support for the view that free trade or a low uniform tariff is approximately optimal.
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