Author:
Guidotti Pablo E.,Kaempfer William H.,Pietruska Alexander M.,Wang Leonard F.S.
Abstract
Recent studies on the welfare implications of internationally
mobile capital for a country employing commercial policy have been
restricted to constant‐returns‐to‐scale (CRS) production models. It is
generally concluded that the pursuit of such policies is
welfare‐decreasing under CRS conditions. The analysis to encompass
variable‐returns‐to‐scale (VRS) is generalised and it is shown that
there is an optimal (second best) combination of import tariff and
foreign capital subsidy that will not be “immiserising” for
an increasing‐returns‐to‐scale (IRS) industry.
Subject
General Economics, Econometrics and Finance