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Economies of Scale and Imperfect Competition in an Applied General Equilibrium Model of the Australian Economy

Author

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  • Kaludura Abayasiri-Silva
  • Mark Horridge

Abstract

Recently some researchers have suggested that economies of scale and imperfect competition play a major role in determining the effects of exogenous policy shocks. Thus they have emphasised the need to incorporate industrial organisation features into computable general equilibrium (CGE) models. However, our knowledge of this new paradigm is still in its infancy it is not yet clear how models of this type should be specified and to what extent their predictions are sensitive to the choice of specification. This paper describes a 23-sector CGE model of the Australian economy, based on ORANI and on Horridge (1987a and 1987b), which incorporates economies of scale and imperfect competition. The model is used to investigate whether adding these new features affects simulation results. We present results for three different types of non-competitive regime and compare these with results generated by a traditional (constant returns and perfect competition) version of the same model.

Suggested Citation

  • Kaludura Abayasiri-Silva & Mark Horridge, 1996. "Economies of Scale and Imperfect Competition in an Applied General Equilibrium Model of the Australian Economy," Centre of Policy Studies/IMPACT Centre Working Papers op-84, Victoria University, Centre of Policy Studies/IMPACT Centre.
  • Handle: RePEc:cop:wpaper:op-84
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    References listed on IDEAS

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    1. Peter Cory & Mark Horridge, 1985. "A Harris-style miniature version of ORANI," Centre of Policy Studies/IMPACT Centre Working Papers op-54, Victoria University, Centre of Policy Studies/IMPACT Centre.
    2. Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, vol. 74(5), pages 1016-1032, December.
    3. Devarajan, Shantayanan & Rodrik, Dani, 1989. "Trade Liberalization in Developing Countries: Do Imperfect Competition and Scale Economies Matter?," American Economic Review, American Economic Association, vol. 79(2), pages 283-287, May.
    4. Hertel, Thomas & Lanclos, D. Kent & Thursby, Marie, 1991. "General Equilibrium Effects of Trade Liberalization in the Presence of Imperfect Competition," 1991 Conference, August 22-29, 1991, Tokyo, Japan 183247, International Association of Agricultural Economists.
    5. Randall Wigle, 1988. "General Equilibrium Evaluation of Canada-U.S. Trade Liberalization in a Global Context," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 539-564, August.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Peter Dixon & Michael Jerie & Maureen Rimmer, 2016. "Modern Trade Theory for CGE Modelling: The Armington, Krugman and Melitz Models," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 1(1), pages 1-110, June.
    2. Hao Xiao & Shujin Zhu & Lafang Wang, 2009. "Will the financial crisis become the turning point for China's auto industry? A dynamic computable general equilibrium analysis with imperfect competition," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 7(4), pages 477-497.
    3. Glyn Wittwer & Marnie Griffith, 2011. "Modelling drought and recovery in the southern Murray‚ÄźDarling basin," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(3), pages 342-359, July.
    4. Kaludura Abayasiri-Silva & Mark Horridge, 1998. "The Effects of Current Fiscal Restraint on the Australian Economy: an Applied General Equilibrium Analysis with Imperfect Competition," Centre of Policy Studies/IMPACT Centre Working Papers op-91, Victoria University, Centre of Policy Studies/IMPACT Centre.
    5. Peter B. Dixon & Maureen T. Rimmer, 2010. "Simulating the U.S. Recession with and without the Obama package: the role of excess capacity," Centre of Policy Studies/IMPACT Centre Working Papers g-193, Victoria University, Centre of Policy Studies/IMPACT Centre.
    6. Productivity Commission, 2008. "Modelling Economy-wide Effects of Future Automotive Assistance," Research Reports, Productivity Commission, Government of Australia, number 30.

    More about this item

    Keywords

    Economies of scale; imperfect competition; applied general equilibrium models;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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