TITLE:
Implications of Trade Policies in Segmented Factor Markets—A General Equilibrium Approach
AUTHORS:
Soumyatanu Mukherjee, Shreya Banerjee
KEYWORDS:
Tariff, Foreign Capital, Segmented Factor Markets, General Equilibrium
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.5,
March
27,
2018
ABSTRACT: 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.