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Optimal Commercial Policy under Increasing Returns to Scale with Sector‐specific Capital

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 1 February 1991

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.

Keywords

Citation

Guidotti, P.E., Kaempfer, W.H., Pietruska, A.M. and Wang, L.F.S. (1991), "Optimal Commercial Policy under Increasing Returns to Scale with Sector‐specific Capital", Journal of Economic Studies, Vol. 18 No. 2. https://doi.org/10.1108/01443589110004055

Publisher

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MCB UP Ltd

Copyright © 1991, MCB UP Limited