Trade liberalization in oligopolistic competition with unemployment: a general equilibrium analysis

This paper examines the short- and long-run effects of partial trade liberalization through relaxation of quantity restrictions in an oligopolistically competitive economy with unemployment. While the short-run effects of the liberalization policy are ambiguous, its long-run impacts are clear: The policy dampens the price of the imported goods, raises firms' output and reduces the number of firms. Furthermore, the policy lowers the unemployment ratio and hence improves welfare when the economy suffers from sector-specific unemployment, whereas the policy may aggravate underemployment and thus may lower welfare for a labour-surplus economy.