Gains from trade under variable returns to scale, commodity taxation, tariffs and factor market distortions

This paper examines the effect on welfare of improvements in the terms of trade and movement from autarky to free trade in the presence of variable returns to scale, production and consumption taxes, tariffs and factor market distortions. By expressing welfare in terms of a social welfare function and by considering infinitesimal changes in prices, sufficient conditions for the nonharmfulness of trade and improvements in the terms of trade are obtained which substantially weaken those obtained by Kemp and Negishi (1970).