Industrial Organization and Trade Liberalization: Evidence from Korea
In: Empirical Studies of Commercial Policy
Drawing on evidence about industrial organization and market structure, the authors develop a computable general equilibrium model in selected industrial sectors with increasing returns to scale. They use this model to estimate the welfare gains Korea would realize from abolishing the import restraints prevailing in 1982. Under constant returns to scale, they estimate welfare gains to be 1 percent of GDP. With increasing returns to scale in three industrial sectors, they estimate welfare gains ranging from -0.5 percent to 10 percent of 1982 GDP, depending on assumptions about the pricing behavior (markup pricing or Cournot competition) and profit levels that existed under protection.
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