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The State of the North American and Japanese Motor Vehicle Industries: A Partially Calibrated Model to Examine the Impacts of Trade Policy Changes

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  • Melvyn Fuss
  • Steven Murphy
  • Leonard Waverman

Abstract

In this paper we utilize a three component model of the automotive industry to simulate the impacts of various trade policy scenarios, such as changes in tariffs and quotas, on the U.S. and Canadian motor vehicle sectors as compared to their Japanese competitors. The three components are a cost module, a mark-up module and a demand module. These models contain the features stressed by the "new" international trade literature: (I) economies of scale in production, (2) imperfect competition, and (3) product differentiation. As a result of these modelling details we are able to capture quantitatively a number of outcome characteristics stressed in the strategic trade literature. Scenarios which expand a country's output reduce unit costs of production, both in the short and long-run. Protectionist policies adopted by North American governments result in rent transfers to these countries. The price and output effects of scenarios which favour North American producers at the expense of Japanese producers however are moderated by the Japanese practices of partial pass-through and pricing-to-market. The welfare implications of the various scenarios are in accordance with the strategic trade literature, in the sense the protectionist policies can in some cases increase aggregate welfare in North America at the expense of Japan.

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  • Melvyn Fuss & Steven Murphy & Leonard Waverman, 1992. "The State of the North American and Japanese Motor Vehicle Industries: A Partially Calibrated Model to Examine the Impacts of Trade Policy Changes," NBER Working Papers 4225, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4225
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    References listed on IDEAS

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    1. Brander, James A. & Spencer, Barbara J., 1984. "Trade warfare: Tariffs and cartels," Journal of International Economics, Elsevier, vol. 16(3-4), pages 227-242, May.
    2. Richard E. Baldwin & Paul Krugman, 1986. "Market Access and International Competition: A Simulation Study of 16K Random Access Memories," NBER Working Papers 1936, National Bureau of Economic Research, Inc.
    3. Fuss,Melvyn A. & Waverman,Leonard, 1992. "Costs and Productivity in Automobile Production," Cambridge Books, Cambridge University Press, number 9780521341417.
    4. Harris, Richard G., 1989. "The New Protectionism Revisited," Queen's Institute for Economic Research Discussion Papers 275219, Queen's University - Department of Economics.
    5. Fuss, Melvyn & Waverman, Leonard, 1990. "The extent and sources of cost and efficiency differences between U.S. and Japanese motor vehicle producers," Journal of the Japanese and International Economies, Elsevier, vol. 4(3), pages 219-256, September.
    6. Richard G. Harris, 1989. "The New Protectionism Revisited," Canadian Journal of Economics, Canadian Economics Association, vol. 22(4), pages 751-778, November.
    7. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
    8. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
    9. Richard C. Marston, 1990. "Price Behavior in Japanese and U.S. Manufacturing," NBER Working Papers 3364, National Bureau of Economic Research, Inc.
    10. Steven Berry & Vittorio Grilli & F. Lopez-de-Silanes, 1992. "The Automobile Industry and The Mexico-Us Free Trade Agreement," NBER Working Papers 4152, National Bureau of Economic Research, Inc.
    11. James Levinsohn, 1988. "Empirics of Taxes on Differentiated Products: The Case of Tariffs in the U.S. Automobile Industry," NBER Chapters,in: Trade Policy Issues and Empirical Analysis, pages 9-44 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Swagel, Phillip, 2000. "Union behavior, industry rents, and optimal policies," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 925-947, August.
    2. Douglas Nelson, 1996. "The Political Economy of U.S. Automobile Protection," NBER Chapters,in: The Political Economy of American Trade Policy, pages 133-196 National Bureau of Economic Research, Inc.
    3. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, vol. 89(3), pages 400-430, June.

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