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Effects of trade liberalization on firm profits and social welfare: the role of technology

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  • G. Badri Narayanan

Abstract

The objective of this study is to analyse the effects of trade liberalization on profits of a capital-intensive exporting country and a labour-intensive one with different cost functions and the welfare of the importing country under an oligopolistic competition framework. The results show that output is increasing in the degree of trade liberalization and price falls with it. However, the effects of freer trade on profits of the exporting countries are ambiguous and depend on the net gains in profit from free trade. Given the same level of output for both countries, a suffciently high output would bring more profits to the capital-intensive country than to the labour-intensive country. Welfare of the importing country, at least within this framework, is increasing in the degree of trade liberalization, provided that the initial level of restrictions in trade are not too high.

Suggested Citation

  • G. Badri Narayanan, 2006. "Effects of trade liberalization on firm profits and social welfare: the role of technology," Applied Economics Letters, Taylor & Francis Journals, vol. 13(1), pages 63-66.
  • Handle: RePEc:taf:apeclt:v:13:y:2006:i:1:p:63-66
    DOI: 10.1080/13504850500392263
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    References listed on IDEAS

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    1. Mary Amiti, 2011. "How the Sequence of Trade Liberalisation Affects Industrial Location," Chapters,in: International Handbook on the Economics of Integration, Volume II, chapter 9 Edward Elgar Publishing.
    2. Falvey, Rod & Reed, Geoff, 2000. "Trade Liberalization and Technology Choice," Review of International Economics, Wiley Blackwell, vol. 8(3), pages 409-419, August.
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    Cited by:

    1. NARAYANAN, G. Badri, 2008. "Effects Of Phasing Out Of Mfa Quotas On Indian Garment Exports, 1992-2003," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 8(1), pages 71-88.

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