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Why Do the Free Trade Gain Numbers Differ So Much? The Role of Industrial Organization in General Equilibrium

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  • Tim Hazledine

Abstract

A small general equilibrium model calibrated approximately to match the Canadian tradeable goods sector is used to examine the implications of a range of assumptions about pricing behavior and entry barriers for the impact of free trade with the United States. It turns out that only a model with an extreme combination of non-competitive product market and free entry (as well as unexploited scale economies) can generate substantial gains from free trade. Other assumptions modeled include: monopolistic competition, market share pricing, an "economists's" model, and a "mainstream industrial organization" approach. The predicted welfare gains range from zero to more than 7 percent of GNP.

Suggested Citation

  • Tim Hazledine, 1990. "Why Do the Free Trade Gain Numbers Differ So Much? The Role of Industrial Organization in General Equilibrium," Canadian Journal of Economics, Canadian Economics Association, vol. 23(4), pages 791-806, November.
    • Handle: RePEc:cje:issued:v:23:y:1990:i:4:p:791-806
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