Export-promoting Protection: Endogenous Monopoly and Price Disparity

This note shows that protection induced export promotion can arise even in the absence of economies of scale , which have been long analysed as factors sliding an import substituting industry up the scale of comparative advantage and turning it into an exporter eventually. Even with an upward-sloping marginal-cost curve, a domestic monopolist can be protected and could then charge discriminatory prices in domestic and export markets, thus becoming an exporter whereas; free trade would have destroyed the monopoly and led to imports instead.