General Equilibrium Analysis of Strategic Trade : A CGE Model for India

Abstract

Strategic trade refers to international trade under market imperfections. The purpose of the paper is to comprehend general equilibrium implications of trade liberalization on Indian macroeconomic aspects under alternative market structures. We applied Computable General Equilibrium (CGE) modelling as our relevant methodology following Shoven, J.B. and Whalley, J (1984). Constructing a four sector Social Accounting Matrix (SAM) for India paper attempts to purport the effects of liberalized trade over different macroeconomic aspects under monopolistic competition and compared 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 & import and gains from trade as compared to standard perfect competition scenario.