Trade and Industrial Policy of Transition Economies

37 Pages Posted: 14 May 2001

See all articles by José L. Moraga-González

José L. Moraga-González

VU University Amsterdam; University of Groningen

Jean-Marie Viaene

Erasmus University

Date Written: March 2001


Trade reforms in transition economies are analyzed in a model of trade and vertical product differentiation. We first show that trade liberalization in transition economies reduces the local firm's output and raises the prices of all variants. Second, we find that neither free trade nor the absence of a subsidy are optimal. Third, there exists a rationale for a government commitment to use socially optimal trade and industrial policies to release the domestic firm from low-quality production. Finally, we establish an equivalence result between the effects of exchange rate changes and those of trade policy on price competition (but not on social welfare).

Keywords: Exchange Rates, Leapfrogging, Optimal Trade Policy, Product Quality, Trade Liberalization

JEL Classification: F12, F13, P31

Suggested Citation

Moraga-Gonzalez, Jose Luis and Viaene, Jean-Marie, Trade and Industrial Policy of Transition Economies (March 2001). Available at SSRN:

Jose Luis Moraga-Gonzalez

VU University Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam


University of Groningen

P.O. Box 800
9700 AV Groningen, Groningen 9700 AV

Jean-Marie Viaene (Contact Author)

Erasmus University ( email )

P.O. Box 1738
3000 DR Rotterdam

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