Project Management

Trade Policy And Efficiency With Monopolistic Competition

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Executive Summary

A comparative advantages model with monopolistic competition is developed to empirically examine the efficiency of protectionism. Based on Brazil's experience, the foreign economy is specified as a set of (integrated) developed countries, which amplifies the access to fixed (corporate and the plants) costs, and thus untangle variations in economies of scale. The spatial approach to monopolistic competition, having an endogenous markup, is essential for attaining an ample set of cost and pricing variables that ultimately enable to identify three policy effects: international competition, productive and allocative efficiency, besides a non-cost competition term. Only the period under protection is considered, so that some comparative static analyses about policies draw on a variety of simulations and counterfactuals.

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