We analyze a model with n countries, each levying its own permanent tariff.
Capital flows freely across borders, but labor is a fixed factor in each country.
A tariff creates static trade if it increases the volume of trade at a fixed growth rate. It creates dynamic trade if the induced change in growth raises the volume of trade. A tariff creates net trade if and only if it raises the growth rate of the world economy. The growth effects of customs unions and free trade areas depend on whether their member countries are sources or hosts of foreign investment. Abstract Using experimental data from asset markets without short selling, this paper shows that bubbles arise for two reasons.