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Protectionism and Increasing Returns with Comparative-Cost Disadvantage

Author

Listed:
  • Roy J. Ruffin

    (Department of Economics, University of Houston)

  • Wilfred J. Ethier

    (Department of Economics, University of Pennsylvania)

Abstract

We reconsider the economics of protection with an industry subject to increasing returns. Under strong comparative disadvantage in one country, any tariff-distorted equilibrium in which both countries produce the commodity must be unstable.In general, under strong comparative disadvantage, the case for free trade is greater than without increasing returns. Also, exceptionally high tariffs are required to protect a high cost increasing-returns industry. Beneficial tariffs or subsidies for the country with comparative disadvantage become prominent when the country with a comparative advantage faces a relevant capacity constraint.

Suggested Citation

  • Roy J. Ruffin & Wilfred J. Ethier, 2011. "Protectionism and Increasing Returns with Comparative-Cost Disadvantage," PIER Working Paper Archive 11-027, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:11-027
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    File URL: https://economics.sas.upenn.edu/sites/default/files/filevault/11-027.pdf
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    References listed on IDEAS

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    Cited by:

    1. Hamid Beladi & Reza Oladi, 2016. "On Mergers and Agglomeration," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 345-358, February.

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    More about this item

    Keywords

    increasing returns; protection; comparative-cost disadvantage; flexible capacity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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