This paper develops a model of international competition in an
oligopoly characterized by strong learning effects. The model is
quantified by calibrating its parameters to reproduce the US-Japanese
rivalry in 16K R.A.Ms from 1978-1983. We then ask the following question:
how much did the apparent closure of the Japanese market to imports
affect Japan's export performance? A simulation analysis suggests that a
protected home market was a crucial advantage to Japanese firms, which
would otherwise have been uncompetitive both at home and abroad. We
find, however, that Japan's home market protection nonetheless produced
more costs than benefits for Japan.
Published: in Empirical Methods for International Trade, (ed)R. Feenstra. MIT Press, 1987.
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