Economics

The objective of this dissertation is to incorporate structural factors in the analysis of welfare and trade policies of developing countries. The first chapter gives an introduction to this study. Chapter two provides an analysis of the welfare effect of financial transfers and capital transfers in the presence of trade taxes. We build a two-good general equilibrium model, which takes into account the use of foreign capital in the import competing sector and the use of land in the exporting sector by developing countries. Labor is used in both sectors. Financial transfers induce changes in commodity terms of trade, which in turn affects capital inflows and the price of imported capital. The welfare effect of financial transfers is considered in the context of induced changes in these variables. In the context of an exogenous export tax, we find that endogenous capital flows aggravate the transfer problem that exists under trade taxation. When trade liberalization is tied to financial aid, we find that the tying of aid may worsen or alleviate the transfer problem, depending on how the existing export tax compares with the optimum. In the case of capital transfers, we find that such transfers can reduce welfare through an adverse price effect and a production distortion