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Trade liberalization and inter-provincial dumping in a spatial equilibrium model: the case of the Canadian dairy industry

Author

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  • Abbassi, Abdessalem
  • Larue, Bruno

Abstract

The paper introduces imperfect competition in a spatial equilibrium model of provincial dairy markets to analyze the welfare impacts of trade liberalization. Our model accounts for output restrictions at the farm level and the potential presence of market power at the processing level. Our model builds on the reciprocal dumping model of Brander and Krugman (1983) because processing firms from different provinces compete with one another in several provinces. Simulations reveal that welfare in the Canadian dairy sector could increase by as much as $1 billion per year if aggressive tariff cuts were made while moderate liberalization plans would yield annual gains of $234.5 million. Even large producing provinces like Quebec and Ontario gain from trade liberalization. In comparison, a perfect competition model yields more modest welfare gains in the range of $15.6 million and $34.5 million. Finally, we show that the switch in the sign of the transport cost-welfare relation identified by Brander and Krugman (1983) occurs at transport costs that are too high to be policy-relevant.

Suggested Citation

  • Abbassi, Abdessalem & Larue, Bruno, 2011. "Trade liberalization and inter-provincial dumping in a spatial equilibrium model: the case of the Canadian dairy industry," MPRA Paper 30363, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:30363
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    File URL: https://mpra.ub.uni-muenchen.de/30363/1/MPRA_paper_30363.pdf
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    References listed on IDEAS

    as
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    4. Moschini, Giancarlo & Moro, Daniele, 1993. "A Food Demand System for Canada," Technical Reports 243853, Agriculture and Agri-Food Canada.
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    More about this item

    Keywords

    Supply management; Canadian dairy sector; imperfect competition; bilateral dumping;

    JEL classification:

    • F1 - International Economics - - Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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