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Industrial organization implications of QR trade regimes : evidence and welfare costs

  • Condon, Timothy
  • de Melo, Jaime

Quantitative restrictions (QRs) are the most common form of protection in many developing countries. Often this type of protection emerges during balance of payments crises but, once in place, is not removed. Students of developing countries'foreign exchange regimes have long noted that QRs have deleterious effects beyond those that would emerge from calculations relying strictly on the"tariff equivalent"of quotas. So far most analysis has concentrated on quantifying the cost of rent-seeking activities which allegedly accompany QRs. The purpose of this paper is to extend this analysis by parametrizing two stylized observations that have often been noted about the manufacturing sector of QR-riddenforeign trade regimes: (a) unrealized economies of scale; and (2) lack of competition among domestic firms. The first arises because of the small size of the domestic market; the second arises because of the made-to-measure protection of QR trade regimes. This paper reviews evidence on linkages between firm behaviour, firm size and restrictiveness of the trade regime in semi-industrial developing countries and reports on simulations from a three sector model that explores the sensitivity of numerical estimates to the parameters describing foreign trade and firm behavior under increasing returns of scale.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 487.

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Date of creation: 31 Aug 1990
Date of revision:
Handle: RePEc:wbk:wbrwps:487
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  1. Cox, David & Harris, Richard, 1985. "Trade Liberalization and Industrial Organization: Some Estimates for Canada," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 115-45, February.
  2. de Melo, Jaime & Roland-Holst, David, 1990. "Industrial Organization and Trade Liberalization: Evidence from Korea," CEPR Discussion Papers 399, C.E.P.R. Discussion Papers.
  3. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
  4. de Melo, Jaime & Urata, Shujiro, 1986. "The influence of increased foreign competition on industrial concentration and profitability," International Journal of Industrial Organization, Elsevier, vol. 4(3), pages 287-304, September.
  5. Shantayanan Devarajan & Dani Rodrik, 1989. "Pro-Competitive Effects of Trade Reform: Results from a CGE Model of Cameroon," NBER Working Papers 3176, National Bureau of Economic Research, Inc.
  6. Clarke, Roger & Davies, Stephen & Waterson, Michael, 1984. "The Profitability-Concentration Relation: Market Power or Efficiency?," Journal of Industrial Economics, Wiley Blackwell, vol. 32(4), pages 435-50, June.
  7. Jere H. Behrman, 1976. "Foreign Trade Regimes and Economic Development: Chile," NBER Books, National Bureau of Economic Research, Inc, number behr76-1, July.
  8. Horstmann, Ignatius J. & Markusen, James R., 1986. "Up the average cost curve: Inefficient entry and the new protectionism," Journal of International Economics, Elsevier, vol. 20(3-4), pages 225-247, May.
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