Pub Date : 2021-12-14DOI: 10.1080/10168737.2021.2012222
Quang Dong Nguyen, T. Tran, Quang Huy Nguyen
The paper examines the impact of changes in the exchange rate on Vietnam’s trade balance with Japan based on the employment of both aggregate and industry-level data in a set of linear and nonlinear autoregressive distributed lag models. The results from the models indicate a degree of bias in regression when using aggregate data and a linear ARDL approach. Among the 19 industries under consideration, the NARDL model presents different responses to exchange rate movements from 16 industries, which account for 46% of imports and 63% of exports between Vietnam and Japan. Using aggregate data, the model shows that the exchange rate positively affects the Vietnam-Japan trade balance in the case of currency depreciation, whereas currency appreciation has no impact on the trade balance. Thus, it is concluded that the exchange rate is an effective tool to stimulate exports and improve the trade balance between Vietnam and Japan.
{"title":"Do Changes in the Exchange Rate Have an Asymmetric Effect on the Trade Balance between Vietnam and Japan?","authors":"Quang Dong Nguyen, T. Tran, Quang Huy Nguyen","doi":"10.1080/10168737.2021.2012222","DOIUrl":"https://doi.org/10.1080/10168737.2021.2012222","url":null,"abstract":"The paper examines the impact of changes in the exchange rate on Vietnam’s trade balance with Japan based on the employment of both aggregate and industry-level data in a set of linear and nonlinear autoregressive distributed lag models. The results from the models indicate a degree of bias in regression when using aggregate data and a linear ARDL approach. Among the 19 industries under consideration, the NARDL model presents different responses to exchange rate movements from 16 industries, which account for 46% of imports and 63% of exports between Vietnam and Japan. Using aggregate data, the model shows that the exchange rate positively affects the Vietnam-Japan trade balance in the case of currency depreciation, whereas currency appreciation has no impact on the trade balance. Thus, it is concluded that the exchange rate is an effective tool to stimulate exports and improve the trade balance between Vietnam and Japan.","PeriodicalId":35933,"journal":{"name":"INTERNATIONAL ECONOMIC JOURNAL","volume":"36 1","pages":"59 - 76"},"PeriodicalIF":1.1,"publicationDate":"2021-12-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46667967","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-12-09DOI: 10.1080/10168737.2021.2010229
Gabriel K. Mafie
This paper investigates the impact of climate change on agricultural productivity in Tanzania focusing on maize and paddy as the staple food crops. We use Tanzania National Panel Survey (NPS) data for 2008/9, 2010/11, and 2012/13. The results suggest a significant impact of weather variables – temperature and rainfall, and their shocks on agricultural productivity in Tanzania. Also, farmers’ education appears to reduce the impact of temperature shocks on productivity. These findings imply a need for policy intervention to ensure that farmers are equipped for climate change adaptation as well as the use of modern farming technologies and inputs.
{"title":"The Impact of Climate Change on Agricultural Productivity in Tanzania","authors":"Gabriel K. Mafie","doi":"10.1080/10168737.2021.2010229","DOIUrl":"https://doi.org/10.1080/10168737.2021.2010229","url":null,"abstract":"This paper investigates the impact of climate change on agricultural productivity in Tanzania focusing on maize and paddy as the staple food crops. We use Tanzania National Panel Survey (NPS) data for 2008/9, 2010/11, and 2012/13. The results suggest a significant impact of weather variables – temperature and rainfall, and their shocks on agricultural productivity in Tanzania. Also, farmers’ education appears to reduce the impact of temperature shocks on productivity. These findings imply a need for policy intervention to ensure that farmers are equipped for climate change adaptation as well as the use of modern farming technologies and inputs.","PeriodicalId":35933,"journal":{"name":"INTERNATIONAL ECONOMIC JOURNAL","volume":"36 1","pages":"129 - 145"},"PeriodicalIF":1.1,"publicationDate":"2021-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47857986","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-19DOI: 10.1080/10168737.2021.2001027
Dan Zhang, Arash Farnoosh, Zhengwei Ma
Based on the examination of price discovery between Shanghai crude oil futures and the spot market, this paper explores whether the introduction of Shanghai crude oil futures can play a stabilizing role in the spot market, alleviating the impact of the financial cycle risk on the crude oil market from March 2018 to December 2019. The results show that there is only a uni-directional relationship of the spot price to futures price, and spot plays a leading role in price discovery. The risk of the financial cycle will increase the volatility of spot price, and the introduction of crude oil futures market can increase the impact of the financial cycle on the spot market. The additional research on the microcosmic mechanism of Shanghai crude oil futures indicates that crude oil futures market mainly influences the spot market fluctuation through the behaviour of traders: speculation increases price volatility in the spot market, which is more pronounced in the high volatility of the financial cycle as oppose to hedging transaction.
{"title":"Does the Launch of Shanghai Crude Oil Futures Stabilize the Spot Market? A Financial Cycle Perspective","authors":"Dan Zhang, Arash Farnoosh, Zhengwei Ma","doi":"10.1080/10168737.2021.2001027","DOIUrl":"https://doi.org/10.1080/10168737.2021.2001027","url":null,"abstract":"Based on the examination of price discovery between Shanghai crude oil futures and the spot market, this paper explores whether the introduction of Shanghai crude oil futures can play a stabilizing role in the spot market, alleviating the impact of the financial cycle risk on the crude oil market from March 2018 to December 2019. The results show that there is only a uni-directional relationship of the spot price to futures price, and spot plays a leading role in price discovery. The risk of the financial cycle will increase the volatility of spot price, and the introduction of crude oil futures market can increase the impact of the financial cycle on the spot market. The additional research on the microcosmic mechanism of Shanghai crude oil futures indicates that crude oil futures market mainly influences the spot market fluctuation through the behaviour of traders: speculation increases price volatility in the spot market, which is more pronounced in the high volatility of the financial cycle as oppose to hedging transaction.","PeriodicalId":35933,"journal":{"name":"INTERNATIONAL ECONOMIC JOURNAL","volume":"36 1","pages":"39 - 58"},"PeriodicalIF":1.1,"publicationDate":"2021-11-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46169564","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-10-02DOI: 10.1080/10168737.2021.1999298
N. Abilov
This paper analyzes the sources of business cycle fluctuations in Kazakhstan and the relevance of various frictions in the economy using a medium-scale DSGE model with imperfect exchange rate pass-through. We estimate the model via Bayesian methods and present estimates of structural parameters of the model and highlight the role of various shocks in explaining the actual dynamics of observed variables. In the absence of quality and deseasonalized data, we show that the DSGE model with time-varying markups possesses a reasonable level of accuracy as the one-sided Kalman filter predictions match the dynamics of the observable variables. Posterior estimates of the model show that the long-run growth rate of output is 4.5% per annum and the exchange rate pass-through to domestic prices is between 21% and 35% within a quarter. We also find that risk premium shocks have played an important role in determining the inflation rate, the interest rate and the real exchange rate in the economy since 2015.
{"title":"A Medium-Scale Bayesian DSGE Model for Kazakhstan with Incomplete Exchange Rate Pass-Through","authors":"N. Abilov","doi":"10.1080/10168737.2021.1999298","DOIUrl":"https://doi.org/10.1080/10168737.2021.1999298","url":null,"abstract":"This paper analyzes the sources of business cycle fluctuations in Kazakhstan and the relevance of various frictions in the economy using a medium-scale DSGE model with imperfect exchange rate pass-through. We estimate the model via Bayesian methods and present estimates of structural parameters of the model and highlight the role of various shocks in explaining the actual dynamics of observed variables. In the absence of quality and deseasonalized data, we show that the DSGE model with time-varying markups possesses a reasonable level of accuracy as the one-sided Kalman filter predictions match the dynamics of the observable variables. Posterior estimates of the model show that the long-run growth rate of output is 4.5% per annum and the exchange rate pass-through to domestic prices is between 21% and 35% within a quarter. We also find that risk premium shocks have played an important role in determining the inflation rate, the interest rate and the real exchange rate in the economy since 2015.","PeriodicalId":35933,"journal":{"name":"INTERNATIONAL ECONOMIC JOURNAL","volume":"35 1","pages":"486 - 522"},"PeriodicalIF":1.1,"publicationDate":"2021-10-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48733028","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-09-23DOI: 10.1080/10168737.2021.1977837
Oasis Kodila‐Tedika, S. Khalifa
This paper examines whether the number of official visits to and from the U.S. allows the country to adopt a more democratic system of governance. To achieve its objective, the paper develops a model that derives the conditions under which a host invites a guest to persuade or pressure for democratic improvement, and the conditions under which the guest accepts an invitation to visit and decides to improve the quality of democratic governance after the visit. To test our hypothesis, we introduce novel variables that indicate the number of leader’s trips to the U.S., and the number of visits of U.S. Presidents and Secretaries of State to the country, from 1960 to 2015. The estimation results show that the official visits have a statistically significant positive effect on democracy. These results are robust. The paper also uses 3SLS to deal with potential endogeneity. The estimation confirms our previous findings that the official visits have a statistically significant positive effect on democracy. Finally, we explore the channels of transmission and find that American administrations use bilateral trade flows and U.S. aid as an incentive for countries to democratize. This supports our model predictions.
{"title":"Official Visits and Democracy","authors":"Oasis Kodila‐Tedika, S. Khalifa","doi":"10.1080/10168737.2021.1977837","DOIUrl":"https://doi.org/10.1080/10168737.2021.1977837","url":null,"abstract":"This paper examines whether the number of official visits to and from the U.S. allows the country to adopt a more democratic system of governance. To achieve its objective, the paper develops a model that derives the conditions under which a host invites a guest to persuade or pressure for democratic improvement, and the conditions under which the guest accepts an invitation to visit and decides to improve the quality of democratic governance after the visit. To test our hypothesis, we introduce novel variables that indicate the number of leader’s trips to the U.S., and the number of visits of U.S. Presidents and Secretaries of State to the country, from 1960 to 2015. The estimation results show that the official visits have a statistically significant positive effect on democracy. These results are robust. The paper also uses 3SLS to deal with potential endogeneity. The estimation confirms our previous findings that the official visits have a statistically significant positive effect on democracy. Finally, we explore the channels of transmission and find that American administrations use bilateral trade flows and U.S. aid as an incentive for countries to democratize. This supports our model predictions.","PeriodicalId":35933,"journal":{"name":"INTERNATIONAL ECONOMIC JOURNAL","volume":"35 1","pages":"434 - 468"},"PeriodicalIF":1.1,"publicationDate":"2021-09-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43950695","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-09-10DOI: 10.1080/10168737.2021.1971281
Pablo Agnese, J. Hromcová
We reexamine the effects of offshoring in the US economy in the aftermath of the 2008 crisis. We use a matching model with endogenous adjustment of educational skills while distinguishing between offshoring of high and low-skill activities. We first show that offshoring leads to a restructuring of the economy through a change in the wage premium where overall welfare is improved. Moreover, in a policy exercise, we show that, if offshoring were to be opposed by a protectionist agenda, the resulting welfare losses could be counterbalanced by increased labor flexibility.
{"title":"Offshoring, Welfare, and Flexibility in the Context of US Protectionism","authors":"Pablo Agnese, J. Hromcová","doi":"10.1080/10168737.2021.1971281","DOIUrl":"https://doi.org/10.1080/10168737.2021.1971281","url":null,"abstract":"We reexamine the effects of offshoring in the US economy in the aftermath of the 2008 crisis. We use a matching model with endogenous adjustment of educational skills while distinguishing between offshoring of high and low-skill activities. We first show that offshoring leads to a restructuring of the economy through a change in the wage premium where overall welfare is improved. Moreover, in a policy exercise, we show that, if offshoring were to be opposed by a protectionist agenda, the resulting welfare losses could be counterbalanced by increased labor flexibility.","PeriodicalId":35933,"journal":{"name":"INTERNATIONAL ECONOMIC JOURNAL","volume":"35 1","pages":"391 - 410"},"PeriodicalIF":1.1,"publicationDate":"2021-09-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43736216","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-09-10DOI: 10.1080/10168737.2021.1975303
Henry Laverde-Rojas, J.C. Correa
ABSTRACT Reducing global warming effects without jeopardizing economic prosperity demands the analysis of the link between these factors. Environmental degradation and economic growth are thought to be related in a non-linear manner, following an inverted-U pattern called the ‘Environmental Kuznets Curve’ (EKC). Despite the many studies seeking empirical support for this relationship, the literature does not provide conclusive findings. By presenting the Economic Complexity Index (ECI) as an explanatory variable, this paper aims at providing a comprehensive analysis of EKC from 86 countries with different development levels, covering the period between 1971 and 2014. Different statistical estimation techniques were used, including an Adaptive Neuro-Fuzzy Inference System (ANFIS) model, dynamic panel data techniques, and the Sasabuchi–Lind–Mehlum (SLM) test. The results show no clear evidence supporting the idea of EKC, neither for production volumes nor for production sophistication, as captured by ECI. Nonetheless, when ECI increases, pollution levels drop monotonously only for developed countries.
{"title":"Economic Complexity, Economic Growth, and CO2 Emissions: A Panel Data Analysis","authors":"Henry Laverde-Rojas, J.C. Correa","doi":"10.1080/10168737.2021.1975303","DOIUrl":"https://doi.org/10.1080/10168737.2021.1975303","url":null,"abstract":"ABSTRACT Reducing global warming effects without jeopardizing economic prosperity demands the analysis of the link between these factors. Environmental degradation and economic growth are thought to be related in a non-linear manner, following an inverted-U pattern called the ‘Environmental Kuznets Curve’ (EKC). Despite the many studies seeking empirical support for this relationship, the literature does not provide conclusive findings. By presenting the Economic Complexity Index (ECI) as an explanatory variable, this paper aims at providing a comprehensive analysis of EKC from 86 countries with different development levels, covering the period between 1971 and 2014. Different statistical estimation techniques were used, including an Adaptive Neuro-Fuzzy Inference System (ANFIS) model, dynamic panel data techniques, and the Sasabuchi–Lind–Mehlum (SLM) test. The results show no clear evidence supporting the idea of EKC, neither for production volumes nor for production sophistication, as captured by ECI. Nonetheless, when ECI increases, pollution levels drop monotonously only for developed countries.","PeriodicalId":35933,"journal":{"name":"INTERNATIONAL ECONOMIC JOURNAL","volume":"35 1","pages":"411 - 433"},"PeriodicalIF":1.1,"publicationDate":"2021-09-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44747646","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-09-04DOI: 10.1080/10168737.2022.2090593
I. Kim, Kyoo il Kim
In this paper, we examine the extent to which a government's response to a pandemic affects election outcomes. Using detailed data on South Korea's 21st legislative election, held in April 2020 during the COVID-19 pandemic, we find that a candidate of the ruling Democratic Party was less preferred in electoral districts where the COVID-19 infection rate was higher. We also find that the South Korean government's successful control of the disease contributed significantly to the overwhelming victory of the ruling party against the leading opposition party. Specifically, our counterfactual analysis predicts that each party would have taken 129 and 102 of the 231 constituency seats considered in the analysis, respectively, had the COVID infection rate been the same as the OECD average during the election period. Given that the observed result was 147 to 84, this implies that 18 electees of the ruling party would have lost to the candidates of the leading opposition party, which in turn would have granted the opposition party the ability to block any attempt by the ruling party to fast-track debatable bills.
{"title":"Voting in a Pandemic: Lessons From the 2020 South Korean Legislative Election","authors":"I. Kim, Kyoo il Kim","doi":"10.1080/10168737.2022.2090593","DOIUrl":"https://doi.org/10.1080/10168737.2022.2090593","url":null,"abstract":"In this paper, we examine the extent to which a government's response to a pandemic affects election outcomes. Using detailed data on South Korea's 21st legislative election, held in April 2020 during the COVID-19 pandemic, we find that a candidate of the ruling Democratic Party was less preferred in electoral districts where the COVID-19 infection rate was higher. We also find that the South Korean government's successful control of the disease contributed significantly to the overwhelming victory of the ruling party against the leading opposition party. Specifically, our counterfactual analysis predicts that each party would have taken 129 and 102 of the 231 constituency seats considered in the analysis, respectively, had the COVID infection rate been the same as the OECD average during the election period. Given that the observed result was 147 to 84, this implies that 18 electees of the ruling party would have lost to the candidates of the leading opposition party, which in turn would have granted the opposition party the ability to block any attempt by the ruling party to fast-track debatable bills.","PeriodicalId":35933,"journal":{"name":"INTERNATIONAL ECONOMIC JOURNAL","volume":"36 1","pages":"362 - 381"},"PeriodicalIF":1.1,"publicationDate":"2021-09-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45829846","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-08-17DOI: 10.1080/10168737.2021.1983631
H. Yilmazkuday
This paper investigates the drivers of global trade at the six-digit product level. The identification is achieved first by estimating the log-linear product-level bilateral trade implications of a model and second by aggregating the fitted estimation results across bilateral countries using Taylor series to obtain global measures in levels for each product. The empirical results suggest that supply-side effects (capturing production or exporting costs in source countries) contribute to changes in global trade more than six times the demand-side effects (capturing economic activity or preferences in destination countries) and more than ten times the effects of bilateral trade costs (capturing bilateral protectionism measures). Several product-level implications follow.
{"title":"Drivers of Global Trade: A Product-Level Investigation","authors":"H. Yilmazkuday","doi":"10.1080/10168737.2021.1983631","DOIUrl":"https://doi.org/10.1080/10168737.2021.1983631","url":null,"abstract":"This paper investigates the drivers of global trade at the six-digit product level. The identification is achieved first by estimating the log-linear product-level bilateral trade implications of a model and second by aggregating the fitted estimation results across bilateral countries using Taylor series to obtain global measures in levels for each product. The empirical results suggest that supply-side effects (capturing production or exporting costs in source countries) contribute to changes in global trade more than six times the demand-side effects (capturing economic activity or preferences in destination countries) and more than ten times the effects of bilateral trade costs (capturing bilateral protectionism measures). Several product-level implications follow.","PeriodicalId":35933,"journal":{"name":"INTERNATIONAL ECONOMIC JOURNAL","volume":"35 1","pages":"469 - 485"},"PeriodicalIF":1.1,"publicationDate":"2021-08-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44729994","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-07-03DOI: 10.1080/10168737.2021.1962949
Fernando Barros Jr, R. Castilho, Daniel Galvêas
ABSTRACT In 2017, the Brazilian civil aviation agency changed the checkedbaggage policy, and airline companies would no longer be required to offer free baggage for its passengers. This paper builds a model to study the effects on the market equilibrium of this change in regulation. We suppose that firms operate in an oligopoly market and compete by choosing tickets and baggage quantity as in a Cournot model. Firms had to offer a free quota of baggage, which was set to zero with the deregulation. Both products enter in the firm's cost function. First, we show that the firm's profits do not change with the liberalization policy. Then, we calibrate the model's parameters using Brazilian data. Backed up by numerical simulations, we show that allowing firms to charge baggage separately from tickets results in a decrease in ticket prices (but an increase in total prices) and an increase in the amount of tickets sold in the market. Consumers are expected to have a larger surplus, hence increasing the market welfare. Our results are robust to variations in the parameters of the model. Highlights The Brazilian civil aviation agency changed the checked baggage policy; Companies are no longer be required to offer free baggage for its passengers; We set a model where firms operate in an oligopoly and study airline industry deregulation; Firm's profits do not change with the liberalization policy; There is a decrease in ticket prices (but an increase in total prices) and an increase in amount of tickets sold in the market.
{"title":"On the Regulation of Checked Baggage in the Airline Industry","authors":"Fernando Barros Jr, R. Castilho, Daniel Galvêas","doi":"10.1080/10168737.2021.1962949","DOIUrl":"https://doi.org/10.1080/10168737.2021.1962949","url":null,"abstract":"ABSTRACT In 2017, the Brazilian civil aviation agency changed the checkedbaggage policy, and airline companies would no longer be required to offer free baggage for its passengers. This paper builds a model to study the effects on the market equilibrium of this change in regulation. We suppose that firms operate in an oligopoly market and compete by choosing tickets and baggage quantity as in a Cournot model. Firms had to offer a free quota of baggage, which was set to zero with the deregulation. Both products enter in the firm's cost function. First, we show that the firm's profits do not change with the liberalization policy. Then, we calibrate the model's parameters using Brazilian data. Backed up by numerical simulations, we show that allowing firms to charge baggage separately from tickets results in a decrease in ticket prices (but an increase in total prices) and an increase in the amount of tickets sold in the market. Consumers are expected to have a larger surplus, hence increasing the market welfare. Our results are robust to variations in the parameters of the model. Highlights The Brazilian civil aviation agency changed the checked baggage policy; Companies are no longer be required to offer free baggage for its passengers; We set a model where firms operate in an oligopoly and study airline industry deregulation; Firm's profits do not change with the liberalization policy; There is a decrease in ticket prices (but an increase in total prices) and an increase in amount of tickets sold in the market.","PeriodicalId":35933,"journal":{"name":"INTERNATIONAL ECONOMIC JOURNAL","volume":"35 1","pages":"344 - 366"},"PeriodicalIF":1.1,"publicationDate":"2021-07-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46728404","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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