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Trade in Intermediate Producer Services under Imperfect Competition

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  • Aidan Islyami

Abstract

In this paper a stylized CGE model is constructed to study the impact of liberalization of barriers for foreign providers of intermediate producer services under imperfect competition on the welfare, the downstream industry output, the prices of the factors of production and the pattern of trade. An attempt is made at incorporating oligopoly market structure into the services sector within general equilibrium model. Consequently, a model with firms making output conjectures about domestic and foreign rivals is adopted. The case of a small developing country with less efficient services sector relative to the foreign firms is assumed. In this framework, interaction and the relative significance of mechanisms resulting from the love of variety, anti and pro competitive and the efficiency effects on the outcomes of the services liberalization is analyzed. It is found that the liberalization services trade might be negative in terms of welfare and downstream industry expansion even if the profits of the foreign firms are not shifted abroad. This represents the evidence of dominant anticompetitive effect. It is therefore important to take into consideration the underlying market structure while liberalizing services trade.

Suggested Citation

  • Aidan Islyami, 2009. "Trade in Intermediate Producer Services under Imperfect Competition," FIW Working Paper series 020, FIW.
  • Handle: RePEc:wsr:wpaper:y:2009:i:020
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    References listed on IDEAS

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    1. John Whalley, 2004. "Assessing the Benefits to Developing Countries of Liberalisation in Services Trade," The World Economy, Wiley Blackwell, vol. 27(8), pages 1223-1253, August.
    2. Michael Gasiorek & Alasdair Smith & Anthony J. Venables, 2002. "The Accession of the UK to the EC: A Welfare Analysis," Journal of Common Market Studies, Wiley Blackwell, vol. 40(3), pages 425-447, September.
    3. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
    4. Mattoo, Aaditya & Rathindran, Randeep, 2006. "Measuring Services Trade Liberalization and Its Impact on Economic Growth: An Illustration," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 64-98.
    5. Haaland, Jan I. & Norman, Victor D, 1992. "Global Production Effects of European Integration," CEPR Discussion Papers 669, C.E.P.R. Discussion Papers.
    6. De Santis, Roberto A., 2002. "A Computable General Equilibrium Model for Open Economies with Imperfect Competition and Product Differentiation," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 311-338.
    7. Devarajan, Shantayanan & Robinson, Sherman, 2002. "The influence of computable general equilibrium models on policy," TMD discussion papers 98, International Food Policy Research Institute (IFPRI).
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    More about this item

    Keywords

    Trade in services; CGE modeling; Imperfect competition;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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