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Title: |
International Capital Mobility and the Economics of Integration |
| Author: |
Michael,
Michael S. |
| Author
Affiliation: |
U CT |
| Source: |
International Economic Journal, Spring 1993, v. 7, no. 1, pp. 61-73 |
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Publication Date: |
Spring 1993 |
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Abstract: |
This paper builds a three-country,
two-good model of economic integration where capital is internationally
mobile and the factors' rates of return are taxed. Within this
framework, the analysis examines the effect on a country's welfare (1)
when it forms a customs union with another country, (2) when its
economic integration with the other country expands from a customs union
to a common market, and (3) when it joins a common market. It
demonstrates that whenever the return of capital is not taxed, the
beneficial effects of a customs union are greater when capital is
internationally mobile compared to when it is not. When capital is
taxed, however, trade creation may reduce welfare. The paper also
identifies conditions under which the welfare of a country is more
likely to improve with the formation of a common market. |
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