Trade Policy and Market Structure Interactions in Developing Countries

International Monetary Fund

No 1989/091, IMF Working Papers from International Monetary Fund

Abstract: This paper shows that the presence of quotas on imported inputs that are based on installed capacity can lead to capacity underutilization in manufacturing industries of developing countries. A replacement of such quotas, by tariffs leads to full capacity utilization under assumptions of both perfectly and imperfectly competitive markets. Furthermore, such a policy also eliminates strategic advantages for oligopolistic firms that arise in quota-based regimes.

Keywords: WP; free trade; input quota; quota allocation rule; quota regime; free trade price; oligopoly outcome; cost minimization; Trade liberalization; Tariffs; Capacity utilization; Trade policy; Imports (search for similar items in EconPapers)
Pages: 32
Date: 1989-01-01
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