IMPERFECT COMPETITION AND CROWDING OUT - A COMPARISON BETWEEN A SMALLOPEN AND CLOSED ECONOMY

This paper applies the central feature of imperfect competition in the goods market to examine the validity of the standard belief in intern ational macroeconomics, namely that policy effects in a small open eco nomy are less effective than in a closed economy. It is shown that the profit margin in imperfect competition and marginal propensity to lei sure are the key factors in determining whether this standard belief i s valid.