Trade Policy for Imported Intermediate Inputs: A Theoretical and Applied General-Equilibrium Analysis
1992 (English)Report (Other academic)
Conventional analysis in the trade-industrial-organization literature suggests that, when a country has some market power over an imported good, some small level of protection must be welfare improving. This is essentially a terms-of-trade argument that is reinforced if the imported goods are substitutes for domestic goods produced with increasing returns to scale, goods that are initially underproduced in free-trade equilibrium. This paper notes that this result may not hold when (1) the imports are intermediates used in a domestic increasing-returns industry, and/or (2) the intermediates are complements for domestic inputs produced with increasing returns. We then demonstrate such an outcome with respect to Mexican protection against imported auto parts using an applied general-equilibrium model of the North American auto industry.
Place, publisher, year, edition, pages
Stockholm: IIES , 1992. , 28 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 513
IdentifiersURN: urn:nbn:se:su:diva-41827OAI: oai:DiVA.org:su-41827DiVA: diva2:337839
Published in connection with a visit at the IIES.2010-08-092010-08-092010-08-09