Trade Reform and Manufacturing Pricing Behavior in Four Archetype Asia-Pacific Economies

Abstract

General equilibrium models are constructed of four Asia-Pacific economies that differ according to their levels of development, the comparative sizes of their manufacturing sectors and their patterns of comparative advantage and trade protection. The countries chosen are Australia, an industrialized importer of manufactures; Japan, an industrialized exporter; the Philippines, a developing importer; and the Republic of Korea, a developing exporter. Manufacturing industries are characterized as comprising identical oligopolistic firms producing homogeneous goods that are differentiated from competing imports. Oligopoly behavior not-withstanding, trade reforms are found to yield conventional results in that net economic gains are small while implicit transfers are substantial. More competitive (non-collusive) pricing by oligopolistic firms, which might be achieved through reform of competition law and trade practices surveillance, yields larger net gains and these gains tend to accrue to all domestic primary factors. Such reforms also yield substantial interaction between oligopoly behavior and economic and industrial structure.