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Tariff Reductions under Foreign Factor Ownership

Author

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  • Marcelo Olarreaga

Abstract

In the presence of foreign factor ownership, the traditional welfare effects of tariff reforms have to be reconsidered to include income redistribution between national and foreign-owned factors. Jagdish N. Bhagwati and Richard A. Brecher (1980) showed that, when the relative amount of foreign-owned factors in the host country is sufficiently large to induce a change in the direction of the trade pattern, immiserizing tariff reductions may occur. Here it is shown that, in the mirror case when foreign-owned factors tend to promote the existing trade pattern (i.e., trade-promoting), similar results can be obtained. On the other hand, when foreign factors are trade substituting, tariff reductions cannot be immiserizing.

Suggested Citation

  • Marcelo Olarreaga, 1998. "Tariff Reductions under Foreign Factor Ownership," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 830-836, November.
  • Handle: RePEc:cje:issued:v:31:y:1998:i:4:p:830-836
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    Citations

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    Cited by:

    1. Olarreaga, Marcelo, 1999. "Foreign-owned Capital and Endogenous Tariffs," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 14, pages 606-624.
    2. Blanchard, Emily J., 2010. "Reevaluating the role of trade agreements: Does investment globalization make the WTO obsolete?," Journal of International Economics, Elsevier, vol. 82(1), pages 63-72, September.
    3. Grether, Jean-Marie & de Melo, Jaime & Olarreaga, Marcelo, 2001. "Who determines Mexican trade policy?," Journal of Development Economics, Elsevier, vol. 64(2), pages 343-370, April.
    4. Hoekman, Bernard & Saggi, Kamal, 1999. "Multilateral disciplines for investment-related policies," Policy Research Working Paper Series 2138, The World Bank.
    5. Bin, Sheng, 2000. "The Political Economy of Trade Policy in China," Working Papers 10/2000, Copenhagen Business School, Department of Management, Politics & Philosophy.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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