The State of the North American and Japanese Motor Vehicle Industries: A Partially Calibrated Model to Examine the Impacts of Trade Policy Changes

44 Pages Posted: 28 Dec 2002 Last revised: 20 Jul 2010

See all articles by Melvyn Fuss

Melvyn Fuss

University of Toronto - Department of Economics

Steven Murphy

University of Toronto - Institute for Policy Analysis

Leonard Waverman

London Business School

Date Written: December 1992

Abstract

In this paper we utilize a three component model of the automotive industry to simulate the impacts of various trade policy scenarios, such as changes in tariffs and quotas, on the U.S. and Canadian motor vehicle sectors as compared to their Japanese competitors. The three components are a cost module, a mark-up module and a demand module. These models contain the features stressed by the "new" international trade literature: (I) economies of scale in production, (2) imperfect competition, and (3) product differentiation. As a result of these modelling details we are able to capture quantitatively a number of outcome characteristics stressed in the strategic trade literature. Scenarios which expand a country's output reduce unit costs of production, both in the short and long-run. Protectionist policies adopted by North American governments result in rent transfers to these countries. The price and output effects of scenarios which favour North American producers at the expense of Japanese producers however are moderated by the Japanese practices of partial pass-through and pricing-to-market. The welfare implications of the various scenarios are in accordance with the strategic trade literature, in the sense the protectionist policies can in some cases increase aggregate welfare in North America at the expense of Japan.

Suggested Citation

Fuss, Melvyn A and Murphy, Steven and Waverman, Leonard, The State of the North American and Japanese Motor Vehicle Industries: A Partially Calibrated Model to Examine the Impacts of Trade Policy Changes (December 1992). NBER Working Paper No. w4225. Available at SSRN: https://ssrn.com/abstract=227977

Melvyn A Fuss (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-1494 (Phone)
416-946-3275 (Fax)

Steven Murphy

University of Toronto - Institute for Policy Analysis ( email )

140 St. George Street
Toronto, Ontario M5S 3G6
Canada
416-978-6652 (Phone)
416-971-2071 (Fax)

Leonard Waverman

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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