Impact of Tari under Hecksher-Ohlin Comparative Advantage Setting and Firm Heterogeneity

This paper analyses the impact of tariff imposition on the industry and firm characteristics along with overall industry and consumer welfare under Hecksher - Ohlin comparative advantage setting with heterogeneous firms. The paper extends the paper of Bernard, Red- ding & Schott (2007) by adding tariffs and found that optimally, tariff should be imposed on the industry with comparative disadvantage in order to dampen the negative effect of trade liberalization on the forms operating in comparative disadvantage industry and the negative effect of trade liberalization on the real reward of the factor used intensively in the comparative disadvantage industry. The tariff not only dampens the negative effect but could also increase the intensity of the specialization effect due to trade liberalization.