ISSN:
1573-708X
Keywords:
Customs union
;
unemployment
;
international capital mobility
;
Harris-Todaro model
Source:
Springer Online Journal Archives 1860-2000
Topics:
Economics
Notes:
Abstract Traditional customs union theory concludes that trade creation enhances welfare. Thus, Yu's (1982) conclusion that trade creation may decrease welfare in the presence of general unemployment is an important observation. Parai and Batra (1987) reestablish the traditional results in the Harris-Todaro model, where unemployment is sector-specific. We conclude that trade creation may decrease welfare in the Harris-Todaro model with international capital mobility when labor subsidies or capital taxes (subsidies) exist. Moreover, second-best labor subsidies or capital subsidies (taxes) recommended by some authors increase the chances of welfare decreasing trade creation.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1007/BF01886180
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