LDCs, International Capital Mobility and the Shadow Price of Foreign Exchange under Tariffs and Quantitative Restrictions

David Franck () and Nadeem Naqvi
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David Franck: College of Business and Public Affairs, The University of Tennessee at Martin

Journal of Economic Development, 2000, vol. 25, issue 2, 43-54

Abstract: For a very general, small open less-developed country with a convex production set, the shadow price of foreign exchange is lower with tariffs on one subset of imports and VERs on another than with tariffs and quotas. This is true with and without international capital mobility. Furthermore, the introduction of international capital mobility reduces the shadow price of foreign exchange in the presence of tariffs and quotas and raises the shadow price of foreign exchange in the presence of tariffs and VERs when tariff- and quantity-constrained goods are both capital intensive or both not capital intensive and are substitutes in import demand.

Date: 2000
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