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Article
Publication date: 1 February 1991

Pablo E. Guidotti, William H. Kaempfer, Alexander M. Pietruska and Leonard F.S. Wang

Recent studies on the welfare implications of internationallymobile capital for a country employing commercial policy have beenrestricted to constant‐returns‐to‐scale…

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.

Details

Journal of Economic Studies, vol. 18 no. 2
Type: Research Article
ISSN: 0144-3585

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