VERs under imperfect competition and foreign direct investment: A case study of the US–Japan auto VER

Jaime de Melo and David Tarr

Chapter 22 in Modeling Developing Countries' Policies in General Equilibrium, 2015, pp 461-483 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This paper first assesses the costs of the US–Japan auto VER in a general equilibrium constant returns to scale (CRTS) model at about $10 billion. It then sequentially introduces important features of the auto VER: endogenous rent premium determination, wage distortions in autos, the US capturing some of the rents of the VER, US monopsony power in autos, increasing returns to scale, pure profits and entry, foreign direct investment, and endogenous conjectures. In the preferred monopolistic competition, initial profit model, the estimated costs are about 10% less than under the assumption of CRTS, but costs remain high at over $200 000 per job protected in autos. Compared with exogenous rent determination, endogenous rent determination results in significantly lower estimated costs of the VER because domestic entry reduces the rent premium. Foreign direct investment with initial profits is shown to lower the costs of the VER if, and only if, the rent premium is endogenous.

Keywords: Applied General Equilibrium Models; Trade Policy; Computable General Equilibrium; Archetypes (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789814494816_0022 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789814494816_0022 (text/html)
Ebook Access is available upon purchase.

Related works:
Journal Article: VERs under imperfect competition and foreign direct investment: A case study of the US-Japan auto VER (1996)
Working Paper: VERs Under Imperfect Competition and Foreign Direct Investment: A Case Study of the US-Japan Auto VER (1995)
Working Paper: VERs under imperfect competition and foreign direct investment: a case study of the U.S. - Japan auto VER (1991)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789814494816_0022

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().