International Capital Mobility, Shadow Prices, and the Cost of Protection
This paper studies the welfare losses from tariff protection in a general model of a small, open economy where some factors are internationally mobile. It is shown that, whether or not the economy remains incompletely specialized, international factor mobility must raise the cost of protection. This result is illustrated in the context of the specific-factors and Heckscher-Ohlin models. In addition, its relationship to earlier work on immiserising capital inflows and on negative shadow prices for factors of production is examined, which allows us to synthesize a number of recent results within a common framework. Copyright 1988 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
Volume (Year): 29 (1988)
Issue (Month): 4 (November)
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