Trade imbalance and domestic market competition policy

This study investigates the effect of a country's suppression of competitio n in its market for nontradables. It assumes that the initial equilibrium i s stationary and demonstrates that if competition is suppressed in a small country, the country's trade surplus increases in the short run. In the lar ge country case, the same change creates an excess demand for future tradab les and affects the relative price between present and future tradables. Us ing a two-country model, the study shows that this price change redistribut es real wealth from the country with a trade deficit to the country with a trade surplus.