Distribution and development effects of tariff subsidy policies in small open dual economy

Abstract

In this paper the effects of tariff cum subsidy policies in a small open dual economy with intersectoral migration are considered. The model used is an extended version of the mobile capital Harris-Todaro model of Corden-Findlay and McCool. Within this framework the effects of policies on unemployment, absolute incomes, inequality and development patterns are studied. The major results are that policies which result in traditional sector development are likely to reduce both unemployment and inequality. Furthermore, subsidies to traditional sector capital may be the best available subsidy in the presence of revenue constraints.