Trade liberalization, division of labor and welfare under oligopoly

Abstract

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.

Asymmetric General Oligopolistic Equilibrium

“…Eckel and Neary (2010) introduce multi-product firms in a GOLE model. Fujiwara and Kamei (2016) focus on the e ects of a symmetric tari reduction in a GOLE model with an explicit division of labor. Beladi and Chakrabarti (2019) analyze the e ects of divisionalization on the extensive margin of trade.…”

How Protectionism Harms Workers Under Oligopoly

“…7 Zhang (2017) analyses a symmetric reduction in trade costs between two trading partners in a GOLE model with product di erentiation. Fujiwara and Kamei (2018) focus on the e ects of a symmetric tari reduction in a GOLE model with an explicit division of labor. They find di erences in the e ects on productivity in trading and non-trading industries.…”

Technology licensing, entry mode, and trade liberalization

“…2 Another interesting result is that a tariff reduction can be detrimental to domestic welfare, which contradicts the prevalent belief that trade liberalization is beneficial to all countries involved. 3 The counterintuitive result of welfare deterioration is in line with Levy and Nolan (1991), Keen and Ligthart (2005), Mukherjee and Pennings (2006), and Fujiwara and Kamei (2018), among others. 4 Moreover, the positive correlation between tariff rate and consumer surplus can also be seen in Motta (1992), Kabiraj and Marjit (2003), and Mukherjee and Pennings (2006).…”

“…Okawa and Iguchi (2016) follow on the topic of Keen and Ligthart (2005) to show that welfare‐improving sales tax reforms do exist. Fujiwara and Kamei (2018) take the division of labour into account and examine the effects of trade liberalization on firm productivity and welfare. Fujiwara and Kamei (2018) show that a tariff reduction necessarily reduces welfare, while the welfare effect of expansion of trading industries is ambiguous.…”

“…Fujiwara and Kamei (2018) take the division of labour into account and examine the effects of trade liberalization on firm productivity and welfare. Fujiwara and Kamei (2018) show that a tariff reduction necessarily reduces welfare, while the welfare effect of expansion of trading industries is ambiguous. The effects of trade liberalization can be contentious, especially when the discussions are associated with income convergence, trade reform, environment, and so on.…”