Author(s)

Soumyatanu Mukherjee^1*, Shreya Banerjee²

¹Faculty Block I, IIMK Campus, Indian Institute of Management Kozhikode, Kozhikode, India.
²IIMK Campus, Kozhikode, India.

This paper, using a three-sector full-employment general equilibrium model with segmented domestic factor markets, explains how and under what conditions a policy of import restriction using tariffs can be beneficial for a small, open economy compared to the import liberalisation policy, contrary to the conventional results. Also, inflows of foreign-owned capital to an export sector within the economy’s export processing zone coupled with labour-augmenting type technology transfer, with protected import-competing sector, can improve national income, even without any distortion in the formal sector labour market. This simple application of competitive trade models establishes the fact that trade restrictions can promote growth and attract FDI for the developing countries, even when foreign capital enters one specific export sector of the economy.

Tariff, Foreign Capital, Segmented Factor Markets, General Equilibrium

Mukherjee, S. and Banerjee, S. (2018) Implications of Trade Policies in Segmented Factor Markets—A General Equilibrium Approach. Theoretical Economics Letters, 8, 780-792. doi: 10.4236/tel.2018.85054.