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Customs Union and the Harris-Todaro Model with International Capital Mobility

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  • Michael Michael
  • Stephen Miller

Abstract

Traditional customs union theory concludes that trade creation enhances welfare. Thus, Yu's (1982) conclusion that trade creation may decrease welfare in the presence of general unemployment is an important observation. Parai and Batra (1987) reestablish the traditional results in the Harris-Todaro model, where unemployment is sector-specific. We conclude that trade creation may decrease welfare in the Harris-Todaro model with international capital mobility when labor subsidies or capital taxes (subsidies) exist. Moreover, second-best labor subsidies or capital subsidies (taxes) recommended by some authors increase the chances of welfare decreasing trade creation. Copyright Kluwer Academic Publishers 1992

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File URL: http://hdl.handle.net/10.1007/BF01886180
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 3 (1992)
Issue (Month): 1 (February)
Pages: 37-49

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Handle: RePEc:kap:openec:v:3:y:1992:i:1:p:37-49

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: Customs union; unemployment; international capital mobility; Harris-Todaro model;

References

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  1. Neary, J Peter, 1981. "On the Harris-Todaro Model with Intersectoral Capital Mobility," Economica, London School of Economics and Political Science, vol. 48(191), pages 219-34, August.
  2. J. Bhagwati & T. N. Srinivasan, 1973. "Alternative Policy Rankings in a Large, Open Economy with Sector-Specific, Minimum Wages," Working papers 109, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Yu, Eden S H, 1982. "Unemployment and the Theory of Customs Unions," Economic Journal, Royal Economic Society, vol. 92(366), pages 399-404, June.
  4. Das, Satya P., 1981. "Effects of foreign investment in the presence of unemployment," Journal of International Economics, Elsevier, vol. 11(2), pages 249-257, May.
  5. Funatsu, Hideki, 1988. "A Note on the Stability of the Harris-Todaro Model with Capital Mobility," Economica, London School of Economics and Political Science, vol. 55(217), pages 119-21, February.
  6. Corden, W M & Findlay, Ronald, 1975. "Urban Unemployment, Intersectoral Capital Mobility and Development Policy," Economica, London School of Economics and Political Science, vol. 42(165), pages 59-78, February.
  7. Parai, Amar K. & Batra, Raveendra N., 1987. "Customs union and unemployment in LDCs," Journal of Development Economics, Elsevier, vol. 26(2), pages 311-319, August.
  8. Miyagiwa, Kaz, 1988. "Corporate income tax incidence in the presence of sector-specific unemployment," Journal of Public Economics, Elsevier, vol. 37(1), pages 103-112, October.
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