TRADE LIBERALIZATION AND SHADOW PRICES IN THE PRESENCE OF TARIFFS ANDQUOTAS

This paper examines the welfare effects of trade liberalisation and ec onomic growth in an economy which is large enough to influence world p rices and in which trade is restricted by both tariffs and quotas. I d erive general expressions for shadow prices of goods and foreign excha nge and use them to generalise the standard radial reduction and conce rtina reform results. I also derive a general expression for shadow pr ices of factors of production and use it to synthesise the classic res ults of Bhagwati and Johnson on immiserizing growth. Finally, I develo p a new geometric technique to illustrate the results.