Input Trade Liberalization and Welfare Loss of Manufacturing Enterprises: Based on the Perspective of Efficient Market Power

Liu Yifan, Yang Jijun and Yu Jinping
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Liu Yifan: Business School, Nankai University, Huangshan, China
Yang Jijun: School of Finance and Taxation, Nanjing University of Finance and Economics, Dalian, China
Yu Jinping: Business School, Nankai University, Huangshan, China

China Finance and Economic Review, 2023, vol. 12, issue 4, 108-129

Abstract: Considering that upstream monopoly will lead to an exponential increase in the loss of social welfare, this paper investigates the impact of intermediate goods tariff concession on the welfare loss of manufacturing enterprises from the perspective of input trade liberalization and effective market power. It has been discovered that input trade liberalization significantly reduces the welfare loss of manufacturing enterprises. Due to the game condition in which oligopolies check each other and small businesses “gain from fishing”, the inhibitory impact increases as market share decreases. The mechanism test demonstrates that input trade liberalization boosts the effect of technical competition and minimizes welfare loss through promoting market development degree and reducing factor distortion. In addition, this paper also finds that the effect of input trade liberalization on high monopolistic power enterprises is obviously stronger than that of low monopolistic power enterprises. Furthermore, the impact on non-high-tech industries and capital-intensive enterprises is significant, while that on high-tech industries and labor-intensive industries is not. Therefore, the welfare loss should be investigated from the dual perspective of market structure and marker power. Competitiveness has an important effect, while trade liberalization of intermediate inputs has a pivotal effect on promoting market development and improving resource allocation efficiency.

Keywords: input trade liberalization; effective market power; firm welfare loss (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:cferev:v:12:y:2023:i:4:p:108-129:n:5

DOI: 10.1515/cfer-2023-0024

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