Trade liberalization and welfare: Differentiated-good versus homogeneous-good markets |
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Authors: | Hajime Takatsuka Dao-Zhi Zeng |
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Institution: | 1. Graduate School of Management, Kagawa University, Saiwai-cho 2-1, Takamatsu, Kagawa 760-8523, Japan;2. Graduate School of Information Sciences, Tohoku University, Aoba 6-3-09, Aramaki, Aoba-ku, Sendai, Miyagi 980-8579, Japan;3. Center for Research of Private Economy, Zhejiang University, Zheda Road 38, Hangzhou, Zhejiang 310027, China |
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Abstract: | In this paper, we examine the effects of liberalization on industrial location and national welfare in a framework of new economic geography. Specifically, we explicitly incorporate arbitrary trade costs in both differentiated-good and homogeneous-good sectors into a two-country model, and clarify the effects of trade-barrier reduction in each sector. We show that their impacts on welfare levels in the two countries are different, and, if an industry is liberalized while the other is protected, a conflict between the countries might occur. Therefore, appropriate liberalization in both sectors is effective to alleviate such a conflict. |
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