Strategic Distortion of the Objectives of Trade Policy

Abstract

By employing a simple three-country model in which there are two exporting countries and one consuming country, this paper analyses the consequences of one-country strategic distortion of the objectives of trade policy. It finds that although an exporting country can benefit from strategic distortion, it would be preferred that the importing country distorts its policy. Furthermore, it is found that preferential trading agreements can emerge endogenously.