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An Applied General Equilibrium Model Of Moroccan Trade Liberalization Featuring External Economies

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  • C J Krizan

Abstract

Since the 1920's economists have wrestled with the effects of external economies on trade liberalization. In this paper I show that under extreme conditions, externalities can reverse the gains from trade found in perfectly competitive trade models. However, the externalities needed to generate this result, even under the worst possible conditions (all expanding industries are subject to negative externalities, all contracting industries have positive externalities) are orders of magnitude larger than those estimated in Krizan (1997). This suggests that the presence of external economies of scale does not provide a credible argument for protectionism. On the other hand, the CGE model showed that external effects can increase the welfare gains from trade liberalization, but the combined effect is still small compared to other policy options. This finding contrasts sharply with many models featuring internal returns to scale that are able to generate large welfare benefits from trade liberalization.

Suggested Citation

  • C J Krizan, 1997. "An Applied General Equilibrium Model Of Moroccan Trade Liberalization Featuring External Economies," Working Papers 97-16, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:97-16
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
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    3. Rotemberg, Julio J. & Saloner, Garth, 2000. "Competition and human capital accumulation: a theory of interregional specialization and trade," Regional Science and Urban Economics, Elsevier, pages 373-404.
    4. Rutherford, Thomas F. & Rutstrom, E.E. & Tarr, David, 1993. "Morocco's free trade agreement with the European community : a quantitative assessment," Policy Research Working Paper Series 1173, The World Bank.
    5. Elhanan Helpman & Paul Krugman, 1987. "Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258087x, January.
    6. Ethier, Wilfred, 1979. "Internationally decreasing costs and world trade," Journal of International Economics, Elsevier, pages 1-24.
    7. F. H. Knight, 1924. "Some Fallacies in the Interpretation of Social Cost," The Quarterly Journal of Economics, Oxford University Press, pages 582-606.
    8. Venables, Anthony J, 1987. "Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model," Economic Journal, Royal Economic Society, vol. 97(387), pages 700-717, September.
    9. Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, pages 651-667.
    10. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868, January.
    11. Helpman, Elhanan, 1984. "Increasing returns, imperfect markets, and trade theory," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 7, pages 325-365 Elsevier.
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    Keywords

    CES; economic; research; micro; data; microdata; chief; economist;

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