Foreign Capital Flows, Tariffs, and Welfare: A Global Analysis

Abstract

Making use of a simple, yet powerful, new approach, the author generalizes and extends many results concerning the relationship between national welfare and capital-flow induced changes in tariff protection or tariff-induced changes in the factor terms-of-trade in single- and multihousehold small, open economies. His treatment of exogenous foreign capital flows allows for changes in rentals, i.e., changes in the specialization pattern associated with capital flows. This leads to several new insights. An important, yet hitherto unnoticed, asymmetry between the welfare effects of endogenous trade in goods and factor movements, or both and exogenous trade in goods, factor movements, or both is analyzed.

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