International Factor Mobility, Non-traded Goods, Tariffs, and the Terms of Trade

Michael Michael

Canadian Journal of Economics, 1992, vol. 25, issue 2, 493-99

Abstract: The present paper develops a general model with one imported, one exported, many non-traded goods, where some factors of production are internationally mobile. Within this framework, the analysis establishes the validity of some earlier results and extends others. That is, (1) a tariff increase reduces the country's welfare; (2) tariff-induced international factor flows reduce a country's welfare; (3) an improvement in a country's terms of trade in the presence of a tariff raises its welfare more when factors are internationally mobile than when not; and (4) with preferential trading agreements, trade creation always improves the country's welfare, while trade diversion may or may not.

Date: 1992
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