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Estimating the pro-competitive gains from trade liberalization: an application to Mexican manufacturing

Jean-Marie Grether

The Journal of International Trade & Economic Development, 1997, vol. 6, issue 3, 393-417

Abstract: An original two-stage method is proposed to estimate the pro-competitive gains from trade liberalization. In a first step, I estimate the sensitivity of the price-cost margins of domestic firms to changes in the effective rate of protection, on the basis of a structure-performance relationship. This parameter is later exploited in a second step, where the cost of protection is calculated on the basis of a simple partial equilibrium model where domestic and foreign goods are imperfect substitutes. Applied to the Mexican case, this estimation reveals that protection removal depresses margins significantly and suggests that important additional gains can be expected from pro-competitive forces.

Keywords: Trade liberalization; pro-competitive gains (search for similar items in EconPapers)
Date: 1997
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Handle: RePEc:taf:jitecd:v:6:y:1997:i:3:p:393-417