EVALUATING THE WELFARE COST OF PROTECTIONISM IN THE AUTOMOBILE INDUSTRY. A CONCEPTUAL MODEL AND ITS APPLICATION IN BRAZIL.

The principal objectives of this paper are to develop a conceptual and theoretical framework to evaluate the cost of protectionism in the Brazilian automobile industry, and present a scheme to compare different studies. A standard partial equilibrium model was developed, and applied to the sub-compact vehicle segment of the Brazilian automobile industry. Two important aspects were analyzed: (1) economic indicators, and (2) supply and demand curves. Four economic indicators were used: (1) domestic consumption, (2) domestic production, (3) domestic prices, and (4) world prices. A supply and demand sketch was generated to determine price elasticity, using values obtained from a multiple regression model. The sub-compact vehicle segment was chosen because it represents more than 70% of the Brazilian domestic market. 2000 was chosen as the year to examine because this was when an import tariff of 35% was imposed on the automobile industry. This trade barrier provided an interesting case study for the cost of protectionism model. The paper concludes that the model clearly demonstrates protectionist polices' adverse effects on the Brazilian economy, which experienced a welfare loss borne by consumers, producers and the government. [ABSTRACT FROM AUTHOR]