Trade policy for the multiple product declining industry

Catherine Mann

No 259, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Increasing returns to scale and scope in production technology combined with product substitutability in demand yields an environment where free trade may not maximize domestic country welfare. If not, there is an optimal tax on imports that depends on the cross-elasticity of demand between the products in the spectrum and on the degree of economies of scale and scope in technology. However, even if protection may be warranted in the short run, the long run solution is consistent with the theory of comparative advantage.

Date: 1985
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