General Equilibrium Analysis of Strategic Trade

Abstract

Strategic trade refers to international trade under market imperfections. The purpose of the article is to comprehend general equilibrium implications of trade liberalization on Indian macroeconomic aspects under alternative market structures. We applied computable general equilibrium modelling as our relevant methodology following the work of Shoven and Whalley (1984). Constructing a four sector social accounting matrix for India, this article attempts to purport the effects of liberalized trade over different macroeconomic aspects under monopolistic competition and compares the results with the same obtained under benchmark perfect competition scenario. Our study reveals that trade under imperfect competition could not produce any greater domestic output, expansion of trade in terms of volume of export and import, and gains from trade as compared to standard perfect competition scenario.