Welfare Effects of Protection and Economies of Scale - The Case of The Australian Automotive Industry

MoonJoong Tcha and Takashi Kuriyama
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MoonJoong Tcha: Department of Economics, The University of Western Australia

No 02-11, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: The existence of economies of scale requires different interpretations of the welfare effect of protection on the industry from conventional analyses. This paper finds that the Australian automotive industry has economies of scale, and carries out relevant welfare analysis of tariff. Using the fully modified Phillips-Hansen method, the paper estimates long-run elasticities and changes in consumer and producer surplus by tariffs. With the presence of economies of scale, it is reported that the net deadweight effect of tariffs is relatively small, while the redistribution effects of tariffs are substantial. Also, it is found that the argument that tariffs protect domestic employment is not plausible in the Australian automotive case, due to the existence of economies of scale.

Keywords: Australian automobile industry; protection; economies of scale; welfare effects (search for similar items in EconPapers)
JEL-codes: F12 F13 F14 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2002
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