DP399 Industrial Organization and Trade Liberalization: Evidence from Korea

Author(s): Jaime de Melo, David Roland-Holst
Publication Date: May 1990
Keyword(s): Industrial Organization, Korea, Protectionism, Returns to Scale, Tariffs, Welfare Costs
JEL(s): 421, 422, 616
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=399

Based on evidence about industrial organization and market structure, this paper develops a CGE model with increasing returns to scale (IRTS) in selected industrial sectors in order to estimate the welfare gains Korea would achieve from abolishing the import restraints (tariffs and equivalent measures) prevailing in 1982. Under constant returns (CRTS) across the board, welfare gains are estimated at 1% of GDP. With IRTS in three industrial sectors, welfare gain estimates range from -0.5% to 10% of 1982 GDP, depending on the assumptions concerning price setting behavior and profit levels that existed under protecti.