Trade Policy and Resource Allocation in the Presence of Product Differentiation

Abstract

Product Differentiation and Domestic Prices: tively. This paper has benefited greatly from and draws upon A Partial Equilibrium Analysis collaborative work undertaken with Kemal Dervis. We also wish to thank two anonymous referees for helpful comments. When domestically produced goods and for-The views expressed in this paper are those of the authors and not necessarily those of the institutions with which they eign produced goods are perfect substtutes i are associated. use and when the country is small, an increase in I See, for instance, the single country models of Dixon, the import price results in the same increase in Parmenter, Ryland and Sutton (1977), Dervis, de Melo and the domestic price Thus with the exception of Robinson (1981), and the multi-country models of Deardorifftedmsi

Income and Price Effects in Foreign Trade

“…74 Where imports represent inputs to production, standard production theory predicts that the elasticity of domestic prices with respect to import prices should be approximated by the (value) share of imports in total output, at 73 See Goldstein (1974), Ball et al (1977) and Bruno (1978). 74 de Melo and Robinson (1981) show how the degrees of demand and supply substitution also affect the domestic price effects of changes in tariff and (export) subsidy rates. least in the case of a Cobb-Douglas production function; [Ball et al (1977)].…”

Protection by Tariff Barriers and International Transaction Costs

“…This is the most widely adopted assumption for empirical studies on effective protection, although there are exceptions (e.g. de Melo and Robinson, 1981; Deverajan and Sussangkarn, 1992). Even in the case of the large industrial countries and for trade in manufactured goods, in general it is usually viewed as appropriate to assume that there is competition and an absence of international market power.…”

Macroeconomic Models for East Asian Developing Countries

“…In the latter models, a composite consumption good is defined to represent an aggregation of domestic and imported products in a given sector; there is a constant elasticity of substitution between them, a smaller elasticity value indicating greater difficulty in substituting one for the other in response to changes in their relative prices. Such product differentiation permits two-way trade and provides some autonomy to the domestic price system not found in models that assume perfect substitutability between domestic production and imports (de Melo and Robinson 1981).…”