Export restraints in a model of trade with capital accumulation |
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Authors: | Giacomo Calzolari Luca Lambertini |
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Affiliation: | aDepartment of Economics, University of Bologna, Piazza Scaravilli 2, 40126 Bologna, Italy;bDepartment of Economics, University of Bologna, Strada Maggiore 45, 40125 Bologna, Italy;cENCORE, University of Amsterdam, Roetersstraat 11, WB1018 Amsterdam, The Netherlands |
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Abstract: | This paper examines the impact of voluntary export restraints (VERs) in an international duopoly modeled as a differential game. With a Ramsey capital accumulation dynamics, the game admits multiple steady states, and a VER cannot be ‘voluntarily’ employed by the foreign firm in case of Cournot behavior in demand substitutes. Hence, the dynamic framework confirms the results of the VERs literature with static interaction in output levels. In the case of price behavior, the adoption of an export restraint may increase the profits of both firms if products are substitutes and the steady state is ‘market-driven’. However, contrary to the acquired wisdom based upon the static approach, the dynamic analysis also admits an equilibrium outcome, identified by the Ramsey golden rule, where the incentive to adopt a VER is ruled out, irrespective of whether firms are quantity- or price-setters. |
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Keywords: | Intra-industry trade Trade policy Differential games Capital accumulation |
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