Munich Personal RePEc Archive

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

Chaudhuri, Sarbajit and Banerjee, Dibyendu (2007): Consumption efficiency hypothesis and the optimality of free trade policy in a small open economy.

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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.

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