Tariff,Growth, and Welfare

We develop a two‐country (Home and Foreign) by two‐good (consumption good and investment good) by one factor (capital) endogenous growth model with international knowledge spillover to study the relationship between an import tariff and economic growth and welfare. First, unlike the past literature, we do not need to make an assumption such that the growth rates between countries are identical in a balanced growth path (BGP). Second, we show that there exists a unique and saddle‐point BGP with both countries being incompletely specialized. Third, a higher import tariff on the consumption good in the domestic country may boost (reduce) the rate of economic growth when the foreign (domestic) country has an absolute advantage in the investment good. Finally, a rise in the tariff rate by one country may improve world welfare under some parameter spaces.     

Mergers and Trade Policy under Oligopoly

For an oligopolistic industry, the effects of mergers on the domestic country's optimal trade policy are analyzed. If the domestic country pursues an optimal trade policy then it will always lose as a result of a foreign merger. The optimal domestic response to a foreign merger is to decrease (increase) the tariff if demand is concave (convex) and to increase the production subsidy. The foreign merger reduces foreign welfare when the domestic country pursues its optimal trade policy. The optimal domestic response to a domestic merger is to leave the tariff unchanged and to increase the production subsidy.     

Corporate social responsibility and strategic trade policy: An endogenous timing game and its policy implications

This study incorporates the corporate social responsibility (CSR) initiatives of a domestic firm and analyses strategic trade policy towards a foreign firm in a different market structure. We show that the tariff rate under a foreign (domestic) firm's leadership is lowest when the degree of CSR is large (small). We also show that the foreign firm's leadership yields the highest welfare when the degree of CSR is intermediate, while the domestic firm's leadership yields the highest welfare otherwise. In an endogenous‐timing game, we show that a simultaneous‐move outcome is the unique equilibrium when the degree of CSR is small; thus, it is never socially desirable. We also show that the domestic firm's leadership can be an equilibrium, which results in the highest welfare when the degree of CSR is large. Finally, when the degree of CSR is large, collusive behaviours between the domestic and foreign firms can increase welfare.     

TARIFF POLICY AND WELFARE IN AN INTERNATIONAL DUOPOLY WITH CONSUMER‐FRIENDLY INITIATIVE

The purpose of this paper is to explore how strategic tariff policy and welfare are affected by the consumer‐friendly initiative of foreign exporting firms. We define a firm that is consumer‐friendly or non‐profit‐based if it considers both its own profit and consumer surplus. This paper extends Brander and Spencer by taking the consideration of consumer‐friendly firms into an international duopoly, and within such context examining the tariff policy and welfare. The consumer‐friendly initiative that leads to trade liberalization is a ‘Win‐Win‐Win’ solution in the sense that it is not only beneficial for foreign exporting firms, but also for the government and consumers of the importing country.     

Dynamic Interactions in Trade Policy in a Differential Game Model of Tariff Protection

This paper develops a two‐country dynamic game model of tariff protection to reconsider optimal trade policies and their implications for welfare. The authors show that an import subsidy is optimal in the feedback Nash equilibria, which results in a curious possibility that the domestic market is monopolized by the foreign firrm. However, welfare comparisons among Nash equilibria, free trade, and autarky reveal that feedback Nash equilibria involve higher welfare than both autarky and free trade, i.e. dynamic noncooperative choices of policy serve as tacit policy coordination and ensure larger trade gains relative to free trade.     

Trade liberalization,forward‐looking firms,and welfare

We set up an oligopolistic model with two exporting firms selling to a third market to investigate the welfare implications of trade liberalization when the exporting firms are forward‐looking. The results show that with cost asymmetry trade liberalization encourages the exporting firms to engage in tacit collusion, which may not only be detrimental to the domestic welfare, but also to the consumer surplus of the importing country. Moreover, we find that tacit collusion is less sustainable if the government of the importing country imposes a lower (higher) tariff on the more (less) efficient exporting firm. If a nonforward‐looking or a forward‐looking cost‐efficient domestic firm exists in the importing country, then trade liberalization also encourages tacit collusion.     

Partial Privatization,Foreign Competition,and Optimum Tariff*

Using a simple international mixed oligopoly model with one public and one or more foreign firms, this paper examines the effect of partial privatization or foreign competition on optimum tariffs and finds that foreign competition lowers the optimal tariff rate but partial privatization raises it. This result implies that trade liberalization is welfare improving if a country opens up its economy by allowing foreign competition. However, the liberalization policy is not desirable when the country only partially or completely privatizes its publicly‐owned enterprises.     

Capital Imports and Tariffs

This paper develops a three‐sector, three‐factor specific factor model with a tariff and presents conditions under which capital imports and tariffs can be welfare enhancing in a developing country. The impact on welfare depends on the tariff revenue effect and the repatriation effect. A capital import is welfare enhancing if it reduces the domestic output of imports. A tariff is welfare enhancing only if it reduces the return to foreign capital.     

On the Equivalence of Tariffs and Quotas under a Revenue Constraint

This paper sets out a duopolistic model to examine the price and welfare equivalence of tariffs and quotas, given the quota rent is equal to the tariff revenue. It shows that the domestic welfare ranking of the two trade policies crucially depends on the relative costs of the domestic and foreign firms; when the domestic firm's relative costs are lower than those of the foreign firm, a quota regime generally leads to a higher welfare level than that of an equivalent tariff regime. This finding contrasts sharply with the conclusions of Dasgupta and Stiglitz (1977 ), where it was found that a tariff regime always generates higher domestic welfare.     

PROFIT TAX AND FIRM MOBILITY IN A THREE‐COUNTRY MODEL

We construct a three‐country model that incorporates international relocation by imperfectly competitive firms and examine both the effects of each country's profit tax reduction on the consumption and welfare of all countries, and the incentive for the countries to decrease the profit tax. In such a model, both the terms of trade and international relocation of firms offer the key to understanding the impacts of one country's profit tax policy. In particular, we note that the relocation of firms from the other two countries is positively related to the wage incomes of the third country through a shift in labour demand, and the terms‐of‐trade improvement is not only positively related to the wage incomes, but also negatively related to profit incomes through a shift in world consumption demand. We show that (i) in a three‐country world economy, regardless of the reduction's source, the profit tax reduction of each country leads to relocation of firms away from foreign countries toward its own economy and deteriorates the terms of trade of its economy and (ii) this becomes a ‘beggar‐thy‐neighbour’ policy in the sense that it lowers the welfare of the other foreign countries.     

WAGE SUBSIDY AND WELFARE IN DEVELOPING COUNTRIES

This paper seeks to answer if wage subsidy to workers displaced due to trade reform raises welfare in a developing country. We use a general equilibrium model with non‐specific factor inputs and trade liberalization as a policy variable. A combination of wage subsidy and tariff rate obtains the second‐best welfare level. The theoretical result is new, policy‐relevant and important in view of political‐economy aspects of free trade in developing and transition countries.     

Tax Principles and Tariff‐Tax Reforms under International Oligopoly

In a two‐country duopoly model, this paper compares destination‐ and origin‐based commodity taxes adjusted to tariff reductions so that the world price and foreign welfare remain unaltered. We first find that this tariff‐tax reform reduces domestic welfare under the destination principle while the opposite holds under the origin principle. Then, it is shown that this ranking is reversed if exports are taxed. In short, which is preferable between destination and origin taxes depends on the tax principle and which between imports and exports are taxed.     

Free Trade Agreement and Vertical Trade with a Manufacturing Base

We examine the effects of free trade agreement (FTA) on tariffs and welfare in a three‐country model with vertical trade, where an FTA is formed between a country exporting a final good whose production involves using an intermediate good, and a country exporting the intermediate good in exchange for the final good. We demonstrate that the FTA reduces its member country's external tariff, whereas it raises the non‐member country's tariff. The non‐member country unambiguously becomes better off. In contrast, the FTA may or may not make its member countries better off. This implies that the formation of an FTA may not always be Pareto‐improving.     

Privatization in a Small Open Economy with Imperfect Competition

We look at privatization in a general equilibrium model of a small, tariff‐distorted, open economy. There is a differentiated good produced by both private and public sector enterprises. A reduction in government production in order to cut losses from such production raises the returns to capital and increases the tariff revenue, which are welfare‐improving. However, privatization also leads to lower wages and possibly fewer private brands. This lowers workers’ welfare, which may make privatization politically infeasible. Privatization can improve workers’ welfare with complementary reforms, e.g., attracting foreign investment or trade liberalization.     

Tariff induced licensing contracts,consumers’ surplus and welfare

We construct a duopolistic trade model with technology transfer and consider two-part tariff licensing contracts. We show that a tariff on foreign products can influence the licensing strategy of the foreign firm. There is a trade-off between a tariff and a royalty license in affecting the product price. We show in particular that a tariff can be chosen so as to induce fee licensing and maximize both consumers’ surplus and domestic welfare. This resolves the so-called conflict between these two objectives in respect of the choice of a tariff. The paper provides a number of testable hypothesis.     

Corporate social responsibility,vertical product differentiation and international competition

Would a foreign firm’s consumer‐oriented corporate social responsibility (CSR) activities be rewarded by an importing country’s voluntary tariff reduction? The current paper addresses this question in an import‐competing duopoly model with vertical product differentiation. It is shown that the tariff will decrease if the foreign firm switches from a purely profit‐driven firm to a CSR firm. A consumer‐oriented CSR strategy will always hurt the domestic firm’s profit, whereas the relationship between the foreign firm’s profit and CSR sensitivity (the degree to which a firm cares about consumer welfare) is invertedly U‐shaped. When firms’ decisions to switch to CSR are endogeneized, only the foreign firm will become a CSR firm.     

THE WELFARE EFFECTS OF FOREIGN CAPITAL INFLOW WITH TARIFF-RIDDEN AND QUOTA-RESTRICTED IMPORTS*

The welfare effects of foreign capital inflow and changes in the foreign price and tariff rate of a tariff-ridden imported good are considered for a small country for both 3 times 2 and 3 times 3 trade models with a quota-restricted imported good (whose special case is a nontraded good). For the 3 times 2 model, foreign capital inflow does not affect home welfare when there is no tariff on imports, but it harms the home country if a tariff is imposed on the imports to the extent that the tariff-ridden imported good is more capital intensive than the exported good. On the other hand, for the 3 times 3 model the foreign-capital inflow benefits the home country if the tariff rate is below a certain level under the analogous capital-intensity assumptions. The welfare effects of changes in the foreign price of the tariff-ridden good and its tariff rate remain the same for both models.     

On the International Linkages between Trade and Merger Policies*

In a three‐country model, this paper investigates linkages between merger incentives of exporting firms and the trade policy of an importing country. When exporting firms come from only one country, the tariff response of the importing country reverses the welfare effects of a merger in the exporting country. If there exist two exporting countries, a merger creates two types of conflicting international externalities. First, a merger in one exporting country increases profits of all firms. Secondly, non‐merged firms lose if the importing country is free to raise its tariff in response to a merger of foreign exporters.     

Measuring China’s trade liberalization: A generalized measure of trade restrictiveness index

Neither simple average nor import-weighted average tariff indexes are ideal measures of tariff barriers. In this paper, we propose a generalized trade restrictiveness index (GTRI) that extends Feenstra’s (1995) tariff restrictiveness index (TRI) by relaxing the crucial assumption of a small open economy. We show that the GTRI can be measured using import tariffs, import shares, and the corresponding import and foreign export elasticities. We then apply the GTRI to examine how trade restrictiveness has evolved in China from 1997 to 2008, the period in which China entered the WTO. The GTRI indicates a higher level of protection than simple and import-weighted averages, but lower than the TRI. We further show a negative correlation between tariffs and product export supply elasticity, indicating that strategic trade policy was being pursued prior to China’s WTO accession. Finally, we calculate the welfare loss and terms-of-trade gain due to tariff protection. The overall tariff pass-through increases from around 28% to almost 47% because of the WTO.     

Effects of Unilateral Climate Policy on Terms of Trade,Capital Accumulation,and Welfare in a World Economy

We present a two-good, two-country overlapping generations model where emissions arise from production and each country has a domestic emission permit system. When one country unilaterally reduces her cap on emissions, her output available for domestic and foreign consumption diminishes more than in the other country. With unchanged consumption expenditure shares for both goods the domestic terms of trade improve, while capital stocks decline in the reducing and less strongly in the non-reducing country. Improving terms of trade in the reducing country and falling capital stocks lead in total to welfare losses in both countries. However, if the country which unilaterally reduces her emission permits is a net creditor to the world economy and the Golden Rule applies, her own welfare loss remains below that of the non-reducing country.