Import Protection as Export Promotion

Abstract

In this paper we re-visit Krugman's (1984) thesis that import protection leads to export promotion.Krugman (1984) argues that in the absence of dynamic scale economies, the formalization of this idea appears to require the `heterodox' assumption that marginal costs are decreasing.We seek to extend Krugman (1984) by providing an alternative foundation of the idea based on free entry and linear marginal costs.Interestingly the welfare implications are sensitive to whether there is free entry in only one of the countries, or both, as well as to whether import protection is of the tariff, or the non-tariff kind.

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