Nominal and Optimum Tariffs under Variable Returns to Scale.

This paper analyzes the effects of a tariff on the import demand, the terms of trade, and the domesti c price ratio in a large-country framework incorporating variable ret urns to scale. It is shown that an improvement in the terms of trade for a given tariff may dampen the demand for imports, while a higher tariff for given terms of trade may raise it. An increase in the rate of tariff need not improve the terms of trade and hence may raise th e domestic price ratio of the importable commodity by more than the t ariff rates. Copyright 1987 by Royal Economic Society.