Welfare Effects of Protection and Economies of Scale - The Case of The Australian Automotive Industry
The existence of economies of scale requires different interpretations of the welfare effect of protection on the industry from conventional analyses. This paper finds that the Australian automotive industry has economies of scale, and carries out relevant welfare analysis of tariff. Using the fully modified Phillips-Hansen method, the paper estimates long-run elasticities and changes in consumer and producer surplus by tariffs. With the presence of economies of scale, it is reported that the net deadweight effect of tariffs is relatively small, while the redistribution effects of tariffs are substantial. Also, it is found that the argument that tariffs protect domestic employment is not plausible in the Australian automotive case, due to the existence of economies of scale.
|Date of creation:||2002|
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- Dixon, Peter B, 1978. "Economies of Scale, Commodity Disaggregation and the Costs of Protection," Australian Economic Papers, Wiley Blackwell, vol. 17(30), pages 63-80, June.
- Takacs, Wendy E, 1994. "Domestic Content and Compensatory Export Requirements: Protection of the Motor Vehicle Industry in the Philippines," World Bank Economic Review, World Bank Group, vol. 8(1), pages 127-49, January.
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