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Gains from trade liberalization with imperfectly competitive world markets. A note

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Anania, Giovanni

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Abstract

The paper shows how analyses assuming perfect competition can yield a distorted estimation of the expected effects of a trade liberalization when market imperfections exist. The analytical framework adopted is very simple and three extreme imperfect market structures are considered. In the first case, the exporting country maximizes its producer and consumer surplus by intervening in the world market. The second market imperfection considered is the existence of a private firm playing the role of "pure middleman" in the world market. Then the case of a producer-owned marketing board which is granted exclusive export authority is addressed. It is shown that estimates of the impact of a tariff reduction in terms of prices and volume traded obtained assuming perfect competition when this postulate does not hold, are distorted. When domestic demand and supply functions are assumed to be linear, the impact is overestimated; a ranking of the size of such distortions in the three cases analyzed is provided. When no restriction is imposed on the demand and supply functions, the error in the estimated impact of a tariff reduction involves the magnitude as well as the sign of the expected changes in prices and volume traded. Finally, it is proved that when a private firm exerts monopoly and monopsony power in the world market, both the importing and the exporting countries may well be better off if, rather than making a move towards trade liberalization, the importing country "compensates" the exporting country by means of a direct transfer. El artículo muestra cómo los análisis que incorporan el supuesto de competencia perfecta pueden proporcionar una estimación distorsionada de los efectos esperados de una liberación del comercio en presencia de imperfecciones de mercado . Adoptando un marco analítico muy sencillo, se consideran tres casos extremos de imperfecciones de mercado. En el primero, el país exportador maximiza los excedentes del productor y consumidor interviniendo en el mercado mundial. El segundo es el caso de una empresa privada que desempeña en el mercado mundial un papel de "intermediario puro". El último trata de una junta de comercialización, propiedad de productores que han conseguido derechos exclusivos de exportación. En este trabajo se demuestra la existencia de una desviación de las estimaciones del impacto de una reducción de aranceles sobre los precios y el volumen comercializado cuando en el análisis se supone competencia perfecta y dicho supuesto no se cumple. Además si las funciones de demanda y oferta domésticas son lineales, el impacto precedente queda sobreestimado. Asimismo, en el trabajo se presenta una ordenación de la magnitud de dichas desviaciones para cada uno de los tres casos analizados. Cuando no se impone ninguna restricción sobre las funciones de demanda y oferta, el error de estimación afecta tanto a la magnitud como al signo de los cambios esperados en precios y volumen comercializado, como consecuencia de una reducción de aranceles. Finalmente, se demuestra que, cuando una empresa privada ejerce un poder de monopolio y de monopsonio en el mercado mundial, tanto los países importadores como los exportadores pueden beneficiarse si, en lugar de inclinarse hacia la liberalización del comercio, el país importador "compensa" al país exportador mediante una transferencia directa. Palabras clave: liberalización del comercio; mercados imperfectos; monopolio; monopsonio; junta de comercialización.

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Publisher Info
Article provided by Spanish Association of Agricultural Economists in its journal Economia Agraria y Recursos Naturales.

Volume (Year): 3 (2003)
Issue (Month): 6 ()
Pages:
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Handle: RePEc:ags:earnsa:28798

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Related research
Keywords: trade liberalization; imperfect markets; monopoly; monopsony; marketing board; International Relations/Trade; F12; F13; Q17; Q18;

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References listed on IDEAS
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  1. Sexton, Richard J. & Lavoie, Nathalie, 2001. "Food processing and distribution: An industrial organization approach," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 15, pages 863-932 Elsevier. [Downloadable!] (restricted)
  2. Dixit, Praveen M. & Josling, Tim, 1997. "State Trading In Agriculture: An Analytical Framework," Working Papers 14608, International Agricultural Trade Research Consortium. [Downloadable!]
  3. Lanclos, D. Kent & Hertel, Thomas W. & Devadoss, Stephen, 1996. "Assessing the effects of tariff reform on U.S. food manufacturing industries: the role of imperfect competition and intermediate inputs," Agricultural Economics, Blackwell, vol. 14(3), pages 201-212, August. [Downloadable!] (restricted)
  4. Hertel, Thomas W & Brockmeier, Martina & Swaminathan, Padma V, 1997. "Sectoral and Economy-Wide Analysis of Integrating Central and Eastern Europe Countries into the EU: Implications of Alternative Strategies," European Review of Agricultural Economics, Oxford University Press for the Foundation for the European Review of Agricultural Economics, vol. 24(3-4), pages 359-86.
  5. Swaminathan, Padma V. & Hertel, Thomas W. & Brockmeier, Martina, 1997. "European Union Enlargement: What Are The Agricultural Trade Models Missing?," 1997 Annual meeting, July 27-30, Toronto, Canada 21030, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  6. Anania, Giovanni, 2001. "Modeling Agricultural Trade Liberalization. A Review," 2001 Annual meeting, August 5-8, Chicago, IL 20758, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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