SYNERGY AND INVESTMENT EFFICIENCY EFFECTS OF TRADE AND LABOR-MARKET DISTORTIONS

An alternative mechanism by which trade and labor market distortions a ffect national income is introduced, namely, the effects of these dist ortions on the efficiency of investment. For the typical structure of protection of developing countries, the income losses due to reduced i nvestment efficiency caused by trade distortions are likely to be many times larger than conventional losses. The potential synergistic (neg ative) effects of combining trade and labor market distortions commonl y observed in developing countries are also emphasized. The main concl usion is that income losses of even moderate trade and labor distortio ns are likely to be much greater than usually presumed.