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Consumption efficiency hypothesis and the optimality of free trade policy in a small open economy

Sarbajit Chaudhuri () and Dibyendu Banerjee

MPRA Paper from University Library of Munich, Germany

Abstract: 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)
New Economics Papers: this item is included in nep-int
Date: 2007-07-12
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