1996 Reports

Trade Restrictions, Imperfect Competition and National Welfare with Foreign Capital Inflows

Ranjan, Priya

We look at the impact of foreign capital inflows on home welfare for an imperfectly competitive economy in the presence of 3 alternative kinds of trade restrictions: tariffs, quotas, and VERs. The results obtained differ significantly from those for a competitive economy. When the number of firms is fixed, a capital inflow is welfare enhancing under quantitative restrictions, but immiserizing in the presence of a distorting tariff. However, when there are economies of scale and the number of firms is endogenous, a capital inflow is immiserizing in the presence of a quota or a tariff.