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Is 'Getting The Prices Right' Always Right? How Trade Liberalization Can Fail

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  • Gaitan, Beatriz
  • Pavel, Ferdinand

Abstract

We present a general equilibrium model with oligopsonistic market structure in one of the sectors. Buyers of inputs can set the price of inputs by being involved in rent seeking activities. The framework developed is applied to the Bulgarian economy in particular to the agro-food chain. From the application to the Bulgarian economy we find that if there are market imperfections, such as oligopsonistic behavior in the economy, there are no significant welfare gains from free trade. Significant welfare gains from trade are observed only when a competitive structure prevails. We show that eliminating this market imperfection can bring important welfare implications and an efficient reallocation of resources.

Suggested Citation

  • Gaitan, Beatriz & Pavel, Ferdinand, 2000. "Is 'Getting The Prices Right' Always Right? How Trade Liberalization Can Fail," 2000 Annual meeting, July 30-August 2, Tampa, FL 21881, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea00:21881
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    References listed on IDEAS

    as
    1. Ernesto Hernández-Catá, 1997. "Liberalization and the Behavior of Output during the Transition from Plan to Market," IMF Staff Papers, Palgrave Macmillan, vol. 44(4), pages 405-429, December.
    2. Ernesto Hernández-Catá, 1997. "Liberalization and the Behavior of Output During the Transition From Plan to Market," IMF Working Papers 97/53, International Monetary Fund.
    3. Anne Marie Gulde, 1999. "The Role of the Currency Board in Bulgaria's Stabilization," IMF Policy Discussion Papers 99/3, International Monetary Fund.
    4. S. Fisher & R. Sahay & C. A. Vegh, 1997. "Stabilization and Growth in Transition Economies: The Early Experience," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
    5. Patrick J. Kehoe & Timothy J. Kehoe, 1994. "A primer on static applied general equilibrium models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-16.
    6. Ivanova, Nedka, et al, 1995. "Impact of Changes in Agricultural Policy on the Agro-food Chain in Bulgaria," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 22(3), pages 354-371.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    International Relations/Trade;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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