Trade reform and manufacturing pricing behaviour in four archetype western pacific economies

Abstract

General equilibrium models are constructed of four Western Pacific economies which differ according to their levels of development and the comparative sizes of their manufacturing sectors. The countries chosen are Australia, an industrialised importer of manufactures, Japan, an industrialised exporter, the Philippines, a developing importer, and the Republic of Korea, a developing exporter. In each case the manufacturing sector is characterised as comprising nine separate industries, each with identical oligopolistic firms producing homogeneous goods which are differentiated from competing imports. 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, yield larger net gains and these gains tend to accrue to all domestic primary factors. Imperfect competition and differences in economic structure are found to interact most strongly when reforms include changes to competition policy and hence to the pricing behaviour of oligopoly firms.