Tariffs, quotas and voluntary export restraints with and without internationally mobile capital

This paper presents a general framework for comparing the effects of tariffs,quotas and VERS (voluntary export restraints) both with and without international capital mobility. Expressions for the shadow price of foreign exchange and the shadow price of capital under each type of trade restriction are derived, and it is shown that, although international capital mobility raises the welfare cost of tariff protection, it lowers the welfare cost of quantitative restrictions. In most cases the effects of exogenous shocks in the presence of quotas are intermediate between those in the presence oftariffs and those in the presence of VERS.