A dynamic quantity adjustment process in a small open economy,and welfare effects of tariff changes

Considered an n-good small open economy where the technology is strictly convex and ad valorem tariffs are imposed. In this world it is known that the tariff-utility relationship may be perverse. The fact is known as the Vanek–Bhagwati Paradox. The source of the perversity is found in aggregate income effects. The present paper shows that D-stability of our dynamic system implies non-perverse aggregate income effects, and hence the non-perverse tariff-utility relationship.