Recent studies on the welfare implications of internationallymobile capital for a country employing commercial policy have beenrestricted to constantreturnstoscale CRS production models. It isgenerally concluded that the pursuit of such policies iswelfaredecreasing under CRS conditions. The analysis to encompassvariablereturnstoscale VRS is generalised and it is shown thatthere is an optimal second best combination of import tariff andforeign capital subsidy that will not be immiserising foran increasingreturnstoscale IRS industry.
Journal of Economic Studies – Emerald Publishing
Published: Feb 1, 1991