International Factor Movement and the National Advantage: A Comment.

V. K. Ramaswami has recently shown that "when national income, inclusive of income earned abroad by factors of domestic origin, is to be maximized, optimal taxation of the import of the scarce factor is preferable to optimal restriction of the export of the abundant factor.''[2] The two-fold purpose of this note is to make explicit the general equilibrium analysis underlying Ramaswami's proposition, and to show that, while his policy recommendation is appropriate when a government is comparing the merits of acting as a monopolistic seller or monopsonistic buyer of factor services (a "one-versus-many" situation), it will not be the best policy where governments face each other in a bilateral bargaining situation. I do not refer here to the possibility of retaliatory action as that is understood in the literature on optimal tariffs--we shall follow Ramaswami in assuming no retaliation. The possibility to be discussed is one which, by analogy with ordinary monopoly analysis, arises when an "all-or-nothing" deal, as distinct from the conventional monopoly solution given by Ramaswami's formulae, is possible.[3]. [ABSTRACT FROM AUTHOR]