Gain from trade under tariff policy (in English)
Since the pioneering work on urban unemployment by Harris and Todaro (1970), economists have explored the normative as well as the positive aspects of a dual economy characterized by an urban minimum wage. Aside from explaining the first-best tools and related issues, another strand of the literature focuses on the second – best policy implications for the dual economy. This paper explores the welfare effect of tariff (second-best policy) in an economy with urban unemployment. The main results are as follows: (i) restricted trade is superior to free trade; (ii) more restricted trade can be superior to less restricted trade.
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