Trade Liberalization in a Multinational-Dominated Industry: A Theoretical and Applied General-Equilibrium Analysis / Linda Hunter, James R. Markusen, Thomas F. Rutherford.

Format:

Book

Author/Creator:

Hunter, Linda.

Contributor:

National Bureau of Economic Research.

Markusen, James R.

Rutherford, Thomas F.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3679.

NBER working paper series no. w3679

Language:

English

Subjects (All):

Automobile industry and trade.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Trade Liberalization in a Multinational-Dominated Industry

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1991.

Cambridge, Mass. : National Bureau of Economic Research, 1991.

Summary:

A theoretical model is developed and applied to the North American auto industry, motivated by the possibility of US-Mexico free trade. Special features of the model include (1) significant scale economies at the plant level, (2) imperfect competition among firms, (3) joint ownership of plants and production coordination across plants by each firm, (4) an (initial) ability of firms to segment markets, (5) a separate treatment of non-resident firms in determining oligopolistic markups. Using an applied GE model, we find that (A) the gains to Mexico are significant and the effects on the US and Canada are essentially zero following North American free trade if firms can continue to segment markets: (B) Because of the way that the North American multinationals determine markups, increased imports from Mexico do not result in a rationalization of US and Canadian production in the way it should if firms were strictly national. (C) Genuinely free trade for consumers (integrated markets) results in large gains for Mexico as the Mexican industry is forced to rationalize, while losses to the US and Canada are very small.

Notes:

Print version record

April 1991.

Includes bibliographical references.