Tariffs, FDI with technology transfer and welfare in segmented factor markets

Soumyatanu Mukherjee

No 190, Working papers from Indian Institute of Management Kozhikode

Abstract: This paper, using a three-sector full employment general equilibrium model with segmented domestic factor markets, shows that policy of import restriction using tariffs can be beneficial for a small, open developing economy compared to the policy of import liberalisation, opposite to the conventional results. Also inflows of foreign-owned capital to an export sector within the export processing zone (EPZ) of the economy coupled with labour-augmenting type technology transfer can lead to welfare amelioration, even without the existence of segmentation in labour market. So these seemingly counterintuitive theoretical results support recent empirical findings suggesting 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

Keywords: Tariff; foreign capital; export processing zones; technology transfer; informal sector; economy (search for similar items in EconPapers)
JEL-codes: F11 F16 F21 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2016
New Economics Papers: this item is included in nep-int and nep-iue
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