Global Production and Trade: Factor Migration and Commercial Policy with International Scale Economies.

Spillover effects associated with international scale economies are an immediate result of global and regional integration of industries and have important implications for commercial policy. In this paper, a general, dual model of trade under international scale economies is developed and applied to examine foreign investment, labor migration, and commercial policy. Notwithstanding the intuition of policymakers, protection is not a second-best alternative to direct assistance. It reduces the efficiency of the protected sectors by hindering integration and can only improve national welfare through terms-of-trade related effects, somewhat along the line of classic optimal tariff arguments. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.