Working Paper: NBER ID: w1936
Authors: Richard Baldwin; Paul R. Krugman
Abstract: 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.
Keywords: international competition; market access; random access memories; simulation study
JEL Codes: F12; L13; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Closure of the Japanese market to imports (F14) | Japan's export performance (F14) |
| Protection of the domestic market (D18) | Competitive advantages for Japanese firms (F23) |
| Japan's market protection (F14) | Costs to the Japanese economy (F69) |
| Privileged access to the domestic market (L10) | Ability to learn and reduce costs over time (D24) |
| Ability to learn and reduce costs over time (D24) | Enhanced competitive position abroad (F23) |