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Welfare Effects of Protection and Economies of Scale - The Case of The Australian Automotive Industry

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  • MoonJoong Tcha

    (Department of Economics, The University of Western Australia)

  • Takashi Kuriyama
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    Abstract

    The existence of economies of scale requires different interpretations of the welfare effect of protection on the industry from conventional analyses. This paper finds that the Australian automotive industry has economies of scale, and carries out relevant welfare analysis of tariff. Using the fully modified Phillips-Hansen method, the paper estimates long-run elasticities and changes in consumer and producer surplus by tariffs. With the presence of economies of scale, it is reported that the net deadweight effect of tariffs is relatively small, while the redistribution effects of tariffs are substantial. Also, it is found that the argument that tariffs protect domestic employment is not plausible in the Australian automotive case, due to the existence of economies of scale.

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    File URL: http://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2002/02-11.pdf
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    Bibliographic Info

    Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 02-11.

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    Length: 26 pages
    Date of creation: 2002
    Date of revision:
    Handle: RePEc:uwa:wpaper:02-11

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    Web page: http://www.business.uwa.edu.au/school/disciplines/economics
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    Keywords: Australian automobile industry; protection; economies of scale; welfare effects;

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    References

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    1. Dixon, Peter B, 1978. "Economies of Scale, Commodity Disaggregation and the Costs of Protection," Australian Economic Papers, Wiley Blackwell, vol. 17(30), pages 63-80, June.
    2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    3. Takacs, Wendy E, 1994. "Domestic Content and Compensatory Export Requirements: Protection of the Motor Vehicle Industry in the Philippines," World Bank Economic Review, World Bank Group, vol. 8(1), pages 127-49, January.
    4. Peter Stubbs, 1972. "The Australian Motor Industry A Study in Protection and Growth," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 5(1), pages 46-46.
    5. Peter. Stubbs, 1972. "The Australian Motor Industry A Study in Protection and Growth," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 5(2), pages 51-51.
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