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Consumption efficiency hypothesis and the optimality of free trade policy in a small open economy

Author

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  • Chaudhuri, Sarbajit
  • Banerjee, Dibyendu

Abstract

The paper is designed to examine the optimality of the free trade policy in a small poor economy incorporating the consumption efficiency hypothesis in the simple two-by-two Heckscher-Ohlin-Samuelson (HOS) framework. It finds that the protectionist policy in the form of a tariff on the capital-intensive import-competing sector may improve social welfare and unambiguously raise the economy-wide effective employment.

Suggested Citation

  • Chaudhuri, Sarbajit & Banerjee, Dibyendu, 2007. "Consumption efficiency hypothesis and the optimality of free trade policy in a small open economy," MPRA Paper 4369, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:4369
    as

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    File URL: https://mpra.ub.uni-muenchen.de/4369/1/MPRA_paper_4369.pdf
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    References listed on IDEAS

    as
    1. Harvey Leibenstein, 1958. "Underemployment in Backward Economies: Some Additional Notes," Journal of Political Economy, University of Chicago Press, vol. 66(3), pages 256-256.
    2. Bose, Gautam, 1996. "Agrarian efficiency wages in a dual economy," Journal of Development Economics, Elsevier, vol. 49(2), pages 371-386, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Consumption efficiency hypothesis; Optimality of free trade; Protectionist policy; Heckscher-Ohlin-Samuelson model; Effective employment;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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