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.

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.

• Item Type: MPRA Paper
• Institution: University of Calcutta
• Language: English
• Keywords: Consumption efficiency hypothesis; Optimality of free trade; Protectionist policy; Heckscher-Ohlin-Samuelson model; Effective employment
• Subjects: J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Labor Contracts; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources ; Human Development ; Income Distribution ; Migration

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