IMPERFECT COMPETITION AND CROWDING OUT - A COMPARISON BETWEEN A SMALL OPEN 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 international macroeconomics, namely that policy effects in a small open economy are less effective than in a closed economy. It is shown that the profit margin in imperfect competition and marginal propensity to leisure are the key factors in determining whether this standard belief is valid.