Skip to main content
Article thumbnail
Location of Repository

Trade liberalization and foreign direct investment: an applied general equilibrium model for Costa Rica

By Lisandro Abrego


This paper quantifies the welfare impact of unilateral trade liberalization and computes the optimal tariff structure for Costa Rica in the presence of trade-policy-induced international capital flows and foreign capital taxation. For this, an applied general equilibrium model integrating trade, capital flows and international capital income taxation is used. The model has been calibrated to a 1990-91 data set for the economies of Costa Rica and a group of OECD countries. In the model, foreign capital income is taxed by host countries and the tax-credit system operates in foreign investors home countries. Results for Costa Rica show that complete trade liberalization ends up being welfare-reducing, as it leads to an outflow of capital and loss of tax revenue which more than offset the efficiency gains from an enhanced resource allocation. The optimal tariff structure for the Costa Rican economy turns out to be a mixture of import tariffs and subsidies, though of a relatively small level

Topics: HF
Publisher: University of Warwick. Centre for the Study of Globalisation and Regionalisation
Year: 1999
OAI identifier:

Suggested articles


  1. (1991). Alternative Scenarios of US-Mexico Integration: A Computable General Equilibrium Approach."
  2. (1986). Are International Trade and Factor Mobility Substitutes?"
  3. (1974). Capital and Technology Movements and Economic Welfare,".
  4. (1994). Capital Income Taxation and International Investment,"
  5. (1986). Capital Income Taxation in Growing Open Economies," doi
  6. (1970). Factor Mobility and International Trade: The Case of Complementarity,"
  7. (1983). Factor Movements and Commodity Trade as Complements," doi
  8. (1991). Foreign Tax Credits, the Supply of Foreign Capital, and Tax Exporting," doi
  9. (1988). International Capital Mobility, Shadow Prices, and the Cost of Protection," doi
  10. (1967). International Capital Movements and the Theory of Tari® and Trade,"
  11. (1984). International Factor Movements,"
  12. (1994). International Trade and Environmental Quality: How Important Are the Linkages," doi
  13. (1957). International Trade and Factor Mobility,"
  14. (1995). International Trade in Goods and Factor Mobility. doi
  15. (1993). la Integracion Economica Centroamericana (SIECA) doi
  16. (1991). Learning by Doing and the Dynamic E®ects of International Trade."
  17. (1994). Leyes de Inversion Extranjera y Zonas Francas en Centroamerica."
  18. (1994). Modelling Trade Policy: Applied General Equilibrium Assessment of North American Free Trade. New York: doi
  19. (1991). Optimal Tax and Tari® Policies with Credits," doi
  20. (1984). Protection and the Harmful E®ects of Endogenous Capital Flows," doi
  21. (1977). Tari®, Foreign Capital and Immiserizing Growth," doi
  22. (1992). The Impact of a North American Free Trade Area: Applied General Equilibrium Models,"
  23. (1967). The Possibility of Income Losses from Increased E±ciency or Factor Accumulation in the Presence of Tari®s,"
  24. (1973). The Theory of Immiserizing Growth: Further Applications,"
  25. (1991). The Volume and Composition of Trade between Rich and Poor Countries." doi
  26. (1992). Trade Liberalization in General Equilibrium: Intertemporal and Inter-industry E®ects," doi
  27. (1994). World Investment Directory.
  28. (1993). World Investment Report. doi
  29. (1995). World Trade Organization doi

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.