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The State of the North American and Japanese Motor Vehicle Industries: A Partially Calibrated Model to Examine the Impacts of Trade Policy Changes

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  • Melvyn Fuss
  • Steven Murphy
  • Leonard Waverman

Abstract

In this paper we utilize a three component model of the automotive industry to simulate the impacts of various trade policy scenarios, such as changes in tariffs and quotas, on the U.S. and Canadian motor vehicle sectors as compared to their Japanese competitors. The three components are a cost module, a mark-up module and a demand module. These models contain the features stressed by the "new" international trade literature: (I) economies of scale in production, (2) imperfect competition, and (3) product differentiation. As a result of these modelling details we are able to capture quantitatively a number of outcome characteristics stressed in the strategic trade literature. Scenarios which expand a country's output reduce unit costs of production, both in the short and long-run. Protectionist policies adopted by North American governments result in rent transfers to these countries. The price and output effects of scenarios which favour North American producers at the expense of Japanese producers however are moderated by the Japanese practices of partial pass-through and pricing-to-market. The welfare implications of the various scenarios are in accordance with the strategic trade literature, in the sense the protectionist policies can in some cases increase aggregate welfare in North America at the expense of Japan.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4225.

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Date of creation: Dec 1992
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Handle: RePEc:nbr:nberwo:4225

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  1. Fuss, Melvyn & Waverman, Leonard, 1990. "The extent and sources of cost and efficiency differences between U.S. and Japanese motor vehicle producers," Journal of the Japanese and International Economies, Elsevier, vol. 4(3), pages 219-256, September.
  2. Richard G. Harris, 1989. "The New Protectionism Revisited," Working Papers 758, Queen's University, Department of Economics.
  3. Richard E. Baldwin & Paul Krugman, 1986. "Market Access and International Competition: A Simulation Study of 16K Random Access Memories," NBER Working Papers 1936, National Bureau of Economic Research, Inc.
  4. James Levinsohn, 1988. "Empirics of Taxes on Differentiated Products: The Case of Tariffs in the U.S. Automobile Industry," NBER Chapters, in: Trade Policy Issues and Empirical Analysis, pages 9-44 National Bureau of Economic Research, Inc.
  5. James A. Brander & Barbara J. Spencer, 1983. "Trade Warfare: Tariffs and Cartels," NBER Working Papers 1193, National Bureau of Economic Research, Inc.
  6. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
  7. Richard C. Marston, 1990. "Price Behavior in Japanese and U.S. Manufacturing," NBER Working Papers 3364, National Bureau of Economic Research, Inc.
  8. Steven Berry & Vittorio Grilli & F. Lopez-de-Silanes, 1992. "The Automobile Industry and The Mexico-Us Free Trade Agreement," NBER Working Papers 4152, National Bureau of Economic Research, Inc.
  9. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
  10. Fuss,Melvyn A. & Waverman,Leonard, 1992. "Costs and Productivity in Automobile Production," Cambridge Books, Cambridge University Press, number 9780521341417, October.
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Cited by:
  1. Phillip Swagel, 1996. "Union Behavior, Industry Rents, and Optimal Policies," IMF Working Papers 96/143, International Monetary Fund.
  2. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, vol. 89(3), pages 400-430, June.

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