Trade liberalization and inter-provincial dumping in a spatial equilibrium model: the case of the Canadian dairy industry
AbstractThe paper introduces imperfect competition in a spatial equilibrium model of provincial dairy markets to analyze the welfare impacts of trade liberalization. Our model accounts for output restrictions at the farm level and the potential presence of market power at the processing level. Our model builds on the reciprocal dumping model of Brander and Krugman (1983) because processing firms from different provinces compete with one another in several provinces. Simulations reveal that welfare in the Canadian dairy sector could increase by as much as $1 billion per year if aggressive tariff cuts were made while moderate liberalization plans would yield annual gains of $234.5 million. Even large producing provinces like Quebec and Ontario gain from trade liberalization. In comparison, a perfect competition model yields more modest welfare gains in the range of $15.6 million and $34.5 million. Finally, we show that the switch in the sign of the transport cost-welfare relation identified by Brander and Krugman (1983) occurs at transport costs that are too high to be policy-relevant.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 30363.
Date of creation: 2011
Date of revision:
Supply management; Canadian dairy sector; imperfect competition; bilateral dumping;
Find related papers by JEL classification:
- F1 - International Economics - - Trade
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
This paper has been announced in the following NEP Reports:
- NEP-AGR-2011-04-30 (Agricultural Economics)
- NEP-ALL-2011-04-30 (All new papers)
- NEP-INT-2011-04-30 (International Trade)
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