Trade liberalization and welfare: Differentiated-good versus homogeneous-good markets

Hajime Takatsuka and Dao-Zhi Zeng ()

Journal of the Japanese and International Economies, 2012, vol. 26, issue 3, 308-325

Abstract: In this paper, we examine the effects of liberalization on industrial location and national welfare in a framework of new economic geography. Specifically, we explicitly incorporate arbitrary trade costs in both differentiated-good and homogeneous-good sectors into a two-country model, and clarify the effects of trade-barrier reduction in each sector. We show that their impacts on welfare levels in the two countries are different, and, if an industry is liberalized while the other is protected, a conflict between the countries might occur. Therefore, appropriate liberalization in both sectors is effective to alleviate such a conflict.

Keywords: Trade costs; Firm location; Home market effect; Trade liberalization; Welfare (search for similar items in EconPapers)
JEL-codes: F12 Q17 R1 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:26:y:2012:i:3:p:308-325

DOI: 10.1016/j.jjie.2012.05.003

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