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Trade policy for the multiple product declining industry

  • Catherine L. Mann

Increasing returns to scale and scope in production technology combined with product substitutability in demand yields an environment where free trade may not maximize domestic country welfare. If not, there is an optimal tax on imports that depends on the cross-elasticity of demand between the products in the spectrum and on the degree of economies of scale and scope in technology. However, even if protection may be warranted in the short run, the long run solution is consistent with the theory of comparative advantage.

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File URL: http://www.federalreserve.gov/pubs/ifdp/1985/259/default.htm
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File URL: http://www.federalreserve.gov/pubs/ifdp/1985/259/ifdp259.pdf
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 259.

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Date of creation: 1985
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Handle: RePEc:fip:fedgif:259
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  1. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  2. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June.
  3. Baumol, William J & Bailey, Elizabeth E & Willig, Robert D, 1977. "Weak Invisible Hand Theorems on the Sustainability of Multiproduct Natural Monopoly," American Economic Review, American Economic Association, vol. 67(3), pages 350-65, June.
  4. Barbara J. Spencer & James A. Brander, 1982. "International R&D Rivalry and Industrial Strategy," Working Papers 518, Queen's University, Department of Economics.
  5. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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