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Export-promoting Protection: Endogenous Monopoly and Price Disparity

Bhagwati, Jagdish N.

This note shows that protection-induced export promotion can arise even in the absence of economies of scale, which have been long analysed as factors sliding an import-substituting industry up the scale of comparative advantage and turning it into an exporter eventually. Even with an upward-sloping marginal-cost curve, a domestic monopolist can be protected and could then charge discriminatory prices in domestic and export markets, thus becoming an exporter whereas free trade would have destroyed the monopoly and led to imports instead.

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Pakistan Development Review

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Economics
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January 28, 2013