Rationalization effects of tariff reductions

This paper studies the response of a dominant domestic oligopoly to the reduction in the rate of a protective tariff. The issue here is whether the domestic market performance is improved through a movement toward free trade alone. Put another way, is free trade always a substitute for competition policy? We find that the lower tariff may lead to inferior domestic market performance. The direction of the change and its magnitude are functions of the shape of the import supply function, the degree of competition between oligopolists and whether or not entry is possible. Thus, there is reason to believe that a strong competition policy may, in some markets, be complemnentary to freer trade.

Movements Toward Free Trade and Domestic Market Performance with Imperfect Competition

The Philippines has been the weakest growth performer among the ASEAN countries. This thesis combines both econometric techniques and a computable general equilibrium model to examine the reasons for the country's poor economic performance. Growth models are developed showing the country's declining productivity performance, not only relative to the average of the middle income countries, but also relative to the country's past record. These confirm that aggregate productivity growth was at its worst during the government investment boom period of the late 1970s and early 1980s. In addition, the cross country growth model shows that the investment rate in the Philippines was lower than the average of the middle income countries in contrast to the relatively higher investment rate in other ASEAN countries. During the periods when the country's growth performance was above the average of the middle income countries, the lower investment rate partially offset the contribution of other factors. The results from a multisectoral general equilibrium model, which incorporates imperfect competition and scale economies, suggest that aggregate productivity is low because of trade distortions and associated oligopolistic pricing behavior of protected firms. The sudden fall in productivity growth in the 1980s, however, is more closely associated with the misallocation of investment during the boom period. The sectoral pattem of investment, which has been influenced by the price and profit incentives perpetuated by government investment policies, has not been such as to foster the growth of industries that could generate the largest impacts on the economy from small changes in industry-level productivity. Using the same multisectoral framework, and adding risk premia to the external cost of capital such

Aggregate productivity in the Philippine economy

During the debate that led up to the implementation of a bilateral free-trade agreement between Canada and the United States on January 1, 1989, much was made of economists' claims that both nations could expect significant welfare improvements as a result of the removal of tariffs on traded goods. The welfare gains were expected to flow from average cost savings associated with the exploitation of scale economies. In this article, I show that it was overly optimistic to predict substantive, permanent average cost convergence as a result of adjustments in the scale of production among Canadian or American manufacturing firms. I conclude that the formation of reasonable expectations regarding the effects of trade-induced output adjustments should consider global- and local scale economies and should employ data that are not dominated by a single cycle of macroeconomic volatility.

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An Empty Promise: Average Cost Savings and Scale Economies among Canadian and American Manufacturers, 1910-1988

Con el establecimiento de la Organizacion Comun de Mercados del Platano existe un marco comercial uniforme en toda la Union Europea. Los cambios en el regimen comercial invitan a investigar los efectos de escenarios arancelarios alternativos al establecido para lo cual se utilizan dos modelos de oligopolio, uno de productos homogeneos y otro en el que se asume diferenciacion del producto. El arancel optimo, desde el punto de vista de la Union, en el caso de productos diferenciados es inferior tanto al del caso de productos homogeneos como al recogido en la COM. Asi la estrategia de diferenciacion reduce el nivel de proteccion necesario y se muestra que puede ser una estrategia importante en el mercado Europeo del platano.

Competencia imperfecta, comercio internacional y política comercial: una aplicación al mercado europeo del plátano

This paper provides a formal basis for the widely held proposition, sometimes called the Eastman-Stykolt effect, that the interaction of tariff protection and small domestic market size prevents Canadian firms from achieving scale efficiency. It considers a free-entry, Cournot-Nash equilibrium in a homogeneous goods industry protected by tariffs. The model demonstrates that the tariff-limit pricing effect can arise without appeal to collusion or product differentiation. Moreover, it is not appropriate to test for the Eastman-Stykolt effect by simply including the interaction of market size and tariffs in a regression explaining relative plant scale.

Dev Rawana

Papers

Tariff-Limit Pricing, Relative Plant Scale, and the Eastman-Stykolt Hypothesis