Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

92

Issue

10

Publisher

Utah State University Department of Economics

Publication Date

1992

Rights

Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.

First Page

1

Last Page

26

Abstract

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.

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