Domestic Prices and World Prices

Domestic Prices and World Prices Murali Patibandla PRABHAT PATNAIK (1996) uses the neoclassical trade model of price-taking small country assumption to show how protection of the manufacturing sector will be welfare superior to free trade, contrary to the free trade policy implications of the neo- classicalists. My answer to this paper is "let domestic prices be equated to (or approach) world prices in the present". I derive my arguments by contending some of the special assumptions made by Patnaik in his model and also by showing how the protection of the organised manufacturing sector in practice has been counter to Patnaik's idea of increasing output, employment and surplus for government investment through import protection. I do not contend the infant industry argument for import protection but question the validity of arguing for import protection of the organised manufactured sector in the present juncture.