Research Paper Trade Liberalization, Division of Labor and Welfare under Oligopoly

Fujiwara, Kenji  ,  Kamei, Keita

9492016-09 , Institute of Economic Research, Kyoto University
Incorporating explicitly division of labor into a two-country general oligopolistic equilibrium model, we examine the firm productivity effect of trade liberalization and its welfare implication. We show that a tariff reduction increases the firm productivity of the trading industries but decreases that of the non-trading industries. An expansion of the trading industries, in contrast, decreases the firm productivity of both the trading and non-trading industries. We then find that a tariff reduction necessarily reduces welfare while the welfare effect of expansion of trading industries is ambiguous.

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