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Trade liberalization and welfare: Differentiated-good versus homogeneous-good markets

  • Takatsuka, Hajime
  • Zeng, Dao-Zhi

In this paper, we examine the effects of liberalization on industrial location and national welfare in a framework of new economic geography. Specifically, we explicitly incorporate arbitrary trade costs in both differentiated-good and homogeneous-good sectors into a two-country model, and clarify the effects of trade-barrier reduction in each sector. We show that their impacts on welfare levels in the two countries are different, and, if an industry is liberalized while the other is protected, a conflict between the countries might occur. Therefore, appropriate liberalization in both sectors is effective to alleviate such a conflict.

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File URL: http://www.sciencedirect.com/science/article/pii/S0889158312000214
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Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 26 (2012)
Issue (Month): 3 ()
Pages: 308-325

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Handle: RePEc:eee:jjieco:v:26:y:2012:i:3:p:308-325
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622903

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  4. Ronald Fischer & Pablo Serra, 1998. "Standards and Protection," Documentos de Trabajo 45, Centro de Economía Aplicada, Universidad de Chile.
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  18. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  19. Dao-Zhi Zeng & Toru Kikuchi, 2009. "Home Market Effect And Trade Costs," The Japanese Economic Review, Japanese Economic Association, vol. 60(2), pages 253-270.
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