Tariff policies in a small open spatial economy.

This paper considers tariff policies in a small open economy in which consumers are spatially distributed. The production technology of the manufacturing sector is assumed to exhibit increasing returns to scale, and its product incurs costs in transportation. Examples are constructed that demonstrate that imposition of an import tariff on this sector can lead to an improvement in welfare, despite the fact that a monopoly position is created for some firm in the protected industry, and even though it incurs higher production costs than foreign firms. [ABSTRACT FROM AUTHOR]