Economics Research Institute Study Paper
Utah State University Department of Economics
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This paper shows the non-optimality of the free trade policy in a labor-surplus economy where multinational corporations operate in the importable sector with distortions in the capital market. It then examines the welfare implications of alternative trade intervention policies. The paper illustrates that (a) a tariff and a production subsidy to the importable sector reduce welfare, while (b) an export subsidy and a production subsidy to the exportable sector enhance welfare. The optimum subsidy rates necessary to implement the outwardlooking trade policy are also derived in the paper.
Beladi, Hamid; Biswas, Basudeb; and Tribedy, Gopal, "Optimum Trade Intervention in the Presence of Multinationals" (1992). Economic Research Institute Study Papers. Paper 23.