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Goods and factors liberalization under increasing returns to scale

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  • Anil Lal

Abstract

This paper develops a general equilibrium model with alternative forms of import restrictions, international capital mobility, and taxes on the rate of return on foreign capital in the context of a small open economy using an external increasing returns technology. Within this framework, this paper analyses the price and welfare effects of import liberalization in the presence of tax on foreign capital and of factor flows liberalization in the presence of alternative forms of import restrictions. It is shown, among other things, that, in contrast to the existing literature on constant returns to scale economy, the optimal policy towards foreign factors is possibly tax under each form of import restrictions.

Suggested Citation

  • Anil Lal, 2001. "Goods and factors liberalization under increasing returns to scale," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(2), pages 115-131.
  • Handle: RePEc:taf:jitecd:v:10:y:2001:i:2:p:115-131
    DOI: 10.1080/09638190110039019
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    References listed on IDEAS

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    1. Dei, Fumio, 1985. "Welfare gains from capital inflows under import quotas," Economics Letters, Elsevier, vol. 18(2-3), pages 237-240.
    2. Vandana Chandra & Nadeem Naqvi, 1997. "Protection and the Shadow Price of Foreign Exchange with Increasing Returns and International Capital Mobility," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 959-967, November.
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    5. Tatsuo Hatta, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Oxford University Press, vol. 44(1), pages 1-21.
    6. Jones, Ronald W, 1987. " Tax Wedges and Mobile Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(3), pages 335-346.
    7. John S. Chipman, 1970. "External Economies of Scale and Competitive Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 347-385.
    8. Bhagwati, Jagdish N. & Brecher, Richard A., 1980. "National welfare in an open economy in the presence of foreign-owned factors of production," Journal of International Economics, Elsevier, vol. 10(1), pages 103-115, February.
    9. J. Peter Neary, 1988. "Welfare effects of tariffs and investment taxes," Working Papers 198801, School of Economics, University College Dublin.
    10. Panagariya, Arvind, 1986. "Increasing returns, dynamic stability, and international trade," Journal of International Economics, Elsevier, vol. 20(1-2), pages 43-63, February.
    11. Panos Hatzipanayotou & Michael S. Michael, 1993. "Import Restrictions, Capital Taxes, and Welfare," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 727-738, August.
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