TY  - JOUR
AU  - Lopez-de-Silane,Florencio
AU  - Markusen,James R.
AU  - Rutherford,Thomas F.
TI  - Complementarity and Increasing Returns in Intermediate Inputs: A Theoretical and Applied General-Equilibrium Analysis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4179
PY  - 1992
Y2  - October 1992
UR  - http://www.nber.org/papers/w4179
L1  - http://www.nber.org/papers/w4179.pdf
N1  - Author contact info:
Florencio Lopez-de-Silanes
EDHEC Business School
393, Promenade des Anglais BP 3116
06202 Nice Cedex 3
FRANCE
Tel: +33 (0) 4 93 18 78 07
Fax: +33 (0) 4 93 18 78 41
E-Mail: Florencio.lopezdesilanes@edhec.edu

James R. Markusen
Department of Economics
University of Colorado
Boulder, CO 80309-0256
Tel: 303/492-0748
Fax: 303/492-8960
E-Mail: james.markusen@colorado.edu

Thomas F. Rutherford
ETH Zurich
Zurichbergstrasse 18
8032 Zurich
Switzerland
E-Mail: trutherford@ethz.ch
AB  - Conventional analysis in the trade-industrial-organization literature suggests that, when a country has some market power over an imported good, some small level of protection must be welfare improving. This is essentially a terms-of-trade argument that is reinforced if the imported goods are substitutes for domestic goods produced with increasing returns to scale, goods that are initially underproduced in free-trade equilibrium. This paper notes that this result may not hold when (1) the imports are intermediates used in a domestic increasing-returns industry, and/or (2) the intermediates are complements for domestic inputs produced with increasing returns. We then demonstrate such an outcome with respect to Mexican protection against imported auto parts using an applied general-equilibrium model of the North American auto industry.
ER  -