For a small tariff-imposing country, within the standard two-commodity two-factor model of international trade, this paper reconsiders the implications of an inflow of capital from abroad. When the host country continues to import the capital-intensive good while remaining incompletely specialized, the analysis shows that the capital inflow must reduce host-country welfare, assuming that the foreign capital receives the full (untaxed) value of its marginal product. Under other circumstances considered, however, the inflow may have different consequences for welfare.

dx.doi.org/10.1016/0022-1996(77)90048-4
Journal of International Economics
Department of Economics

Brecher, R.A, & Diaz Alejandro, C.F. (Carlos F.). (1977). Tariffs, foreign capital and immiserizing growth. Journal of International Economics, 7(4), 317–322. doi:10.1016/0022-1996(77)90048-4