Consumption efficiency hypothesis and the optimality of free trade policy in a small open economy
Sarbajit Chaudhuri () and
MPRA Paper from University Library of Munich, Germany
The paper is designed to examine the optimality of the free trade policy in a small poor economy incorporating the consumption efficiency hypothesis in the simple two-by-two Heckscher-Ohlin-Samuelson (HOS) framework. It finds that the protectionist policy in the form of a tariff on the capital-intensive import-competing sector may improve social welfare and unambiguously raise the economy-wide effective employment.
Keywords: Consumption efficiency hypothesis; Optimality of free trade; Protectionist policy; Heckscher-Ohlin-Samuelson model; Effective employment (search for similar items in EconPapers)
JEL-codes: J41 O15 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:4369
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