Factor Intensity Conditions for Welfare-Improving Foreign Investment in Tariff-Distorted Economies: A Comment.

Earlier work in the foreign investment literature shows that the immiserizing effect of capital mobility in the presence of small tariff distortions is immune to capital intensity considerations. This is not so in the context of large tariffs. A capital intensity reversal is sufficient to rescue tariff-ridden economies from the usually damaging effects of capital mobility; on the other hand, a strengthening of the pre-tariff factor intensity pattern ensures that the small tariff/immiserizing capital flow results are robust in the large. Capital movements in the second-best optimum are also predicted. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.