Alternative Policies for Foreign Investment in the Presence of Tariff Distortions

Tain-Jy Chen

Australian Economic Papers, 1985, vol. 24, issue 45, 394-403

Abstract: This paper examines two alternative policies for a small, tariff-distorted country hosting foreign investment. One policy is to allow foreign firms to operate behind the tariff wall; the other is to confine them in a free-trade area. Using a specific factor model, the author shows that confining foreign firms in a free-trade area is superior. Furthermore, under that setting, a subsidy to foreign firms on the use of capital is an optimal policy if they can be prevented from paying domestic workers with their own products. Copyright 1985 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

Date: 1985
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