Trade Policy and Industrial Structure
47 Pages Posted: 20 Sep 2007
Date Written: September 7, 2007
In a small open economy with heterogeneous firms, in which tariffs determine the mass of active firms, the gains from trade liberalization depend positively on the level of firm vertical heterogeneity and negatively on transportation costs. The benefits from temporary protection depend on the level of backwardness: for a given mass of backward firms, the relative gains from protection increase with their quality and decrease with the quality of advanced firms; for given production quality levels, the relative advantage of protection increases with the mass of backward firms.
Keywords: Trade policy, Production network, Learning externalities, Infant industry
JEL Classification: D51, D62, F12, F13
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