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Trade Policy in the Presence of Economies of Scale and Product Variety

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  • Richard H. Snape

Abstract

It is well known that laissez faire may not be the ‘first‐best’ policy in a closed economy where economies of scale are present. Corden has shown that this conclusion can carry over into an open economy, though under his assumption that imported goods are perfect substitutes for home‐produced goods, interference with international trade could not raise real income. We have shown that where there are economies of scale, and imported goods are not identical to the home produced goods, interference with trade could raise real national income, though such a form of intervention would not normally be optimal. Further, it could even be desirable to support home production of more than one ‘variety’. Measurements of ‘costs of protection’ that aggregate several varieties into one may mislead not only regarding the size of the cost but even regarding its sign.

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  • Richard H. Snape, 1977. "Trade Policy in the Presence of Economies of Scale and Product Variety," The Economic Record, The Economic Society of Australia, vol. 53(4), pages 525-534, December.
    • Handle: RePEc:bla:ecorec:v:53:y:1977:i:4:p:525-534
    DOI: 10.1111/j.1475-4932.1977.tb01623.x
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    References listed on IDEAS

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    1. Pursell, G. & Snape, R. H., 1973. "Economies of scale, price discrimination and exporting," Journal of International Economics, Elsevier, vol. 3(1), pages 85-91, February.
    2. Meade, James E, 1974. "The Optimal Balance between Economies of Scale and Variety of Products: An Illustrative Model," Economica, London School of Economics and Political Science, vol. 41(164), pages 359-367, November.
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    Cited by:

    1. Corden, W. Max, 1990. "Strategic trade policy : how new? how sensible?," Policy Research Working Paper Series 396, The World Bank.
    2. Jaime de Melo & David Roland-Holst, 2015. "Industrial Organization and Trade Liberalization: Evidence from Korea," World Scientific Book Chapters, in: Modeling Developing Countries' Policies in General Equilibrium, chapter 18, pages 385-404, World Scientific Publishing Co. Pte. Ltd..
    3. Francois, Patrick & van Ypersele, Tanguy, 2002. "On the protection of cultural goods," Journal of International Economics, Elsevier, vol. 56(2), pages 359-369, March.
    4. Dimitri Mardas & Nikos Varsakelis, 2000. "Public procurement policy and the Czech industry," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(3), pages 488-497, August.
    5. Productivity Commission, 2008. "Modelling Economy-wide Effects of Future Automotive Assistance," Research Reports, Productivity Commission, Government of Australia, number 30.
    6. Gary Banks & Ken Clements & Peter Kenyon, 2003. "Distinguished Fellow of the Economic Society of Australia, 2002: Richard Hal Snape (1936–2002)," The Economic Record, The Economic Society of Australia, vol. 79(245), pages 159-164, June.
    7. P. C. Stubbs, 1981. "Technological Change in Australia:A Review of the Myers Report," The Economic Record, The Economic Society of Australia, vol. 57(3), pages 224-231, September.

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