Asymmetric Countries Research Articles

Self-Enforcing International Environmental Agreements and Altruistic Preferences

This paper analyses the effects of altruism on the formation of climate coalitions in the standard two-stage game of self-enforcing international environmental agreements with identical countries. Altruism implies that each country values, to some extent, every other country’s welfare when deciding on its coalition membership and emissions policy. In the Nash [Stackelberg] game, the fringe [coalition] countries exploit the altruism of the coalition [fringe] countries so that altruism decreases [increases] the coalition size. In any case, global emissions and global welfare are close to the non-cooperative values. However, altruism narrows the gap between the individually optimal emissions and the socially optimal emissions, so altruism increases global welfare. The effects of altruism on the formation of climate coalitions crucially depends on its modelling: If altruism affects the membership decision but not the policy decision, or if each coalition country is more altruistic toward other coalition countries than toward fringe countries, altruism can stabilise large coalitions up to the grand coalition. Finally, altruism can stabilise small coalitions but destabilises large coalitions with asymmetric countries.

Social equity in international environmental agreements

The aim of this paper is to investigate the problem of designing and building International Environmental Agreements (IEAs) taking into account some normative properties. We consider n asymmetric countries of the world, each one generating a quantity of pollutant emissions from the production of goods and services. We assume that individual emissions yield private benefits and negative externalities affecting all countries. To determine its own level of pollution, each state conducts a cost-benefit analysis. The absence of a supranational entity imposing emissions reduction makes IEAs based on voluntary participation. Examining the standard static non-cooperative game-theoretical model of coalition formation, we discover that the resulting emissions allocations might not be equitable à la Foley. It means that there might exist at least one player preferring to implement some other agent’s strategic plan instead of to play her own strategy. With the goal of studying whether equity, at least among coalesced countries, may be a criterion leading to social improvement, we introduce a new optimization rule. We require that members of an environmental coalition have to solve the maximization problem subject to the constraint imposing that they do not envy each other. Analyzing the particular case of two-player games, we get that, when countries are, in a sense, not too different from each other, our new mechanism endogenously induces social equity. By imposing a suitable total emission cap, the same results extend to all those games where our and standard solutions coexist and are different.

Equity‐efficiency tradeoffs in international bargaining

AbstractThis paper analyzes the welfare impact of expanding the negotiation agenda of an international agreement between asymmetric countries (e.g., including specific negotiations over environmental regulations or labor standards in a conventional trade agreement) and demonstrates why such proposed expansions are contentious. A main result is that agenda expansions that provide more bargaining flexibility will increase the efficiency of the agreement but can result in a less equitable agreement that hurts the country that is at a bargaining disadvantage. Similarly, we demonstrate that decreases in bargaining game asymmetry can also make the disadvantaged country worse‐off even as it increases global welfare.

Effectiveness of trade and economic integration of asymmetric countries: Assessment methods and tools

Despite the deepening trend of neo-protectionism and the exacerbation of disproportions in national economies, trade integration remains a relevant form of collaboration among countries worldwide and a driver of their innovation and technological development. The article provides comparative analysis of a number of methods for economic-statistical and management analysis that can be used to assess the impact of the economic asymmetry of partner countries on the effectiveness of their trade and economic integration, and shows that they have both certain potential for solving the task and a number of limitations. It is substantiated that the co-integration test is a promising instrument for testing the hypothesis about the expediency of trade integration of economically asymmetric partners. The presence of co-integration between bilateral trade indicators of asymmetric countries is to mean the synchronization of their dynamics and relative changes, despite differences in absolute values. Furthermore, confirmed cointegration of bilateral trade flows between countries can be considered as an indicator of adherence to market economy principles and the conditions of free trade, as well as an indicator of the level of integration of countries into the system of international economic relations. Prospects for further research consist in testing for the presence of indicators on bilateral trade between asymmetric partners co-integration on the example of particular pairs of countries that are parties to regional trade agreements being characterized by significant differences through the pace of economic development.

Corporate income taxation and multinational production

AbstractThrough the lens of a quantitative general equilibrium model of international trade and multinational production, this paper studies corporate tax competition and cooperation among asymmetric countries. The model theoretically supports the empirical regularities that corporate income taxation influences multinational firms' location and production decisions. Calibrating the model to three asymmetric countries for a hypothetical tax competition, I find that race to the bottom occurs in the Nash equilibrium. Furthermore, counterfactual analysis of the global minimum corporate tax shows welfare reduction compared to the equilibrium of tax competition but welfare improvement compared to the current tax regime.

A THEORY OF ECONOMIC DISINTEGRATION

AbstractWe study the impact of unilateral economic disintegration, such as Brexit, on national and international policies. We introduce firm mobility and business‐tax policies into a general‐equilibrium trade model and analyze the effects of disintegration on tax policies of asymmetric countries. Although the disintegrating country taxes less, business taxes converge in the remaining economic area. We highlight important differences with existing two‐country models. Moreover, we predict a realignment of trade policies with a deeper integration inside the union and lower tariffs worldwide. The leaving country's endogenous integration response with other countries may fully compensate for the disintegration‐induced welfare losses.

Free trade agreements with environmental provisions between asymmetric countries: transfer of clean technology and enforcement

Free trade agreements with environmental provisions between asymmetric countries: transfer of clean technology and enforcement

Welfare effects of introducing quality certification system for developing countries: Evidence from the Chinese experience*

This paper examines whether the quality-certification system might benefit developing economies while there is a widespread conjecture that the system might negatively affect technologically less developed economies. Based on a simple oligopoly model where a developing economy trades with an advanced economy that produces higher quality products, we demonstrate that the introduction of a quality certification system between technologically asymmetric countries might deteriorate the trade balance of the developing economy with the widened technology gap. In addition, we demonstrate that the empirical evidence from the Chinese experience of introducing a quality certification system for imported products from the EU supports the theoretical findings. That is, the imports from the EU to China have significantly increased with the increased quality gap after China introduced the quality certification system. The results implicate that the quality certification system might damage less developed economies when advanced economies hesitate technology transfer, and therefore, it is increasingly imperative to introduce an international coordination mechanism for active technology transfer when quality certification systems are introduced with respect to developing economies.

Strategic climate policy with endogenous plant location: The role of border carbon adjustments

AbstractCarbon leakage and the relocation of firms is one of the main concerns of governments when choosing their climate policy. In a strategic trade model with endogenous plant location, we study the effect of border carbon adjustments (BCAs) on global welfare and emissions in an emission tax competition game between two asymmetric countries for two games: a simultaneous and a sequential game. Without BCAs, a ruinous “race to the bottom” with no relocation of firms is the only Nash equilibrium in a simultaneous game. In a sequential game, additionally, a “wise chicken” equilibrium may emerge where the Stackelberg leader gives in, letting all his/her plants relocate to avoid being stuck at the bottom. With BCAs, equilibrium emission taxes in both countries are higher, implying lower global emissions and usually higher global welfare in both games. With BCAs, the environmental more concerned country accepts that its firm partially relocates abroad, as it is rewarded with better control of global emissions, tariff revenues and higher net profits (profits minus taxes). This avoids high environmental damages and that either net profits are zero because of high subsidy levels in a “race to the bottom” or because all production plants have moved abroad.

Programas de Protección Nutricional de la Agenda Venezuela

Venezuela has become an asymmetric country, with great inequalities and family food insecurity is perhaps the most important nutritional problem. In 1996, the “Venezuela Agenda” began to be implemented, which has a social protection component, which includes 14 programs, to compensate the most disadvantaged population groups for economic measures. Objective. Describe and analyze the strengths and weaknesses of the Agenda programs, more linked to the nutritional situation. Materials and methods. It was based on the analysis of reports submitted by the executing agencies, an opinion poll conducted in Caracas, as well as interviews with program coordinators. The programs were examined: strategic food, family subsidy, school feeding, snack and school canteens, daily care homes and multi-homes. Results. The most common weaknesses are poor evaluation and educational support, poor coverage, overlapping beneficiaries, logistical and budgetary problems. Despite the strong investment of resources, the nutritional deficit in children under six years of age shows an upward trend, which reiterates that nutritional problems have multiple causes and require integrated social policies, stable over time and focused on the most vulnerable groups. Conclusions. This situation forces us to reconsider the programs based on their relevance, feasibility, cost-efficiency and impact and has reiterated the need for a decentralization process to grant more responsibility and decision-making power to state and municipal governments and to the organized community and achieve a greater impact on the target population and its context.

Research Note: Assessing the Impact of K-pop on the Sales of Korean Brands: A Case of Automobile in the U.S. Market

The aim of this paper is to expand upon previous research into the country of origin effect through the use of empirical data by formulating an analysis method which allows the measurement of the extent of country of origin effect by the proxy of K-pop musicians associated with country of origin image and to propose an alternative framework which provides an explanation as to the discrepancies between empirical data and prior research. Our analysis results reveal that the impact of country of origin associated with ‘PSY’ and ‘BTS’ on the automobile sales of ‘Hyundai Sonata’ was significant in the U.S. market. An asymmetric country of origin effect was found vis-à-vis American and Japanese brands.

Fiscal Sustainability: Public Revenue-Expenditure Nexus in a Few Asymmetric Countries in the Globe

This article examines the public revenue and expenditure patterns and its nexus of a few countries. This paper employs panel unit root, panel cointegration and Vector Error Correction Model to analyze the inter-temporal association among the variables of government revenues, expenditures and the growth of GDP through the panel data of ten divergent nations over the period 2001 to 2017. The study exercised three cointegration tests and these estimates find the evidence of long run association among articulated three variables. To know the cross-section status of different nations this paper diverted Phillips-Peron test with bandwidth statistics and it asserted that, all ten countries secured the long run association among the variables. The study uncovered that, growth of GDP has escalated in 0.78% by one percentage increase in revenue expenditure; meanwhile, 1.41% lessening in GDP growth by one percentage increase in revenue income. The specified model is supported by a few diagnostic tests.

Context-driven Local Autonomy. The importance of differentiated assessments in asymmetric countries

L’autonomie locale est une question centrale dans les démocraties, et de nombreuses tentatives ont été faites pour la mesurer. La plupart de ces efforts fournissent des données comparables entre les pays, basées sur des scores au niveau national, négligeant ainsi nécessairement les différences territoriales au sein des pays. Cette étude souligne le caractère multidimensionnel de l’autonomie locale, sa variabilité en fonction du contexte, et l’importance de reconnaître et d’évaluer la différenciation territoriale afin de fournir des mesures plus précises de l’autonomie locale municipale. Il explore donc les variations du degré d’autonomie locale au niveau municipal en Italie par région et pas seulement au niveau du pays. L’Italie est un cas particulièrement intéressant pour son asymétrie quasi-fédérale, tandis que les systèmes fédéraux de l’Autriche et de la Suisse fournissent d’autres preuves de ces variations. Nos résultats – rassemblés dans deux ensembles de données originaux – montrent que les différences d’autonomie locale entre les régions sont remarquablement présentes, et encore plus lorsque l’autonomie régionale est élevée, qu’elles apparaissent indépendamment des compétences formelles attribuées par le cadre juridique, qu’elles varient de manière différente selon les dimensions de l’autonomie, et qu’elles sont liées à l’impact des mesures d’austérité, aux réformes ayant un impact indirect mais substantiel sur le gouvernement local, et aux perceptions contextuelles de la signification de l’autonomie. Ces résultats peuvent être pertinents pour les analyses impliquant des réalités asymétriques dans les démocraties à plusieurs niveaux en Europe et au-delà.

Transboundary pollution control in asymmetric countries: do assistant investments help?

Transboundary pollution control usually requires the cooperation of neighboring countries due to the externality of pollution. However, countries at different levels of development, which are called asymmetric countries in this paper, may have different attitudes toward this cooperation. The developing countries would like to take a free ride and they can benefit from the cooperation with developed countries, but the developed countries may not be willing to afford this cooperation cost. This paper discusses the cooperation between two asymmetric countries that developed country may provide assistant investments to help the developing country reduce pollution stock. We consider a dynamic differential game to model the transboundary pollution control between two asymmetric regions and derive the optimal equilibrium of both regions using the Hamilton-Jacobi-Bellman (HJB) equation. To explore the impact of assistant investments, numerical illustrations and sensitivity analysis are implemented to compare the equilibrium strategies under two scenarios: that with or without assistant investments. We conclude that the common pollution stock will be reduced when the developed country is willing to provide assistant investments to the developing country. Besides, the equilibrium emission strategies of both countries increase with assistant investments, which means more economic benefits for both sides.

The role of side payment requirements in free trade negotiations under asymmetric information

Recent free trade agreements (FTAs) have two outstanding features: they have been drawn among countries with different market size, and relatively small market-sized countries have offered implicit side payments (i.e. concessions pertaining to non-trade aspects). The present study examines FTA negotiations between two asymmetric market-sized countries (one large and the other small) in which the former is unaware of the latter's demand and is allowed to require the latter to transfer side payments. The analysis clarifies that the side payments required by the large country depend on its beliefs about the small country's demand. If the large country expects that the small country's demand is sufficiently high, the FTAs derived from the former's requirement for moderate side payments could be either building blocks or stumbling blocks to global free trade, depending not only on each country's relative market size but also on the required side payments. Otherwise, the large country's requirement for huge side payments leads to or prevents FTAs that serve as stumbling blocks to global free trade, depending on the small country's actual demand.

Standards Harmonization and Asymmetric Compliance Technology

Purpose - The purpose of this paper is to examine the welfare effects of standards harmonization between technologically asymmetric countries, and to determine optimal harmonization strategies for a country with mid-level technological advancement. Design/methodology - Following Salop’s circular city model (Salop, 1979), this study constructs a simple, horizontally-differentiated oligopoly model in which three firms and three countries exist. Each country adopts different compatibility standards and each firm incurs conversion costs for foreign market access due to differences in standards. The conversion costs are related to technology; standards harmonization removes these costs between participating countries. The paper considers three cases: i) no harmonization; ii) harmonization with the more technologically-advanced country and iii) harmonization with the less technologically-advanced country. Findings - The paper first considers a scenario in which all three firms occupy some share of the market in each country. It shows that standards harmonization with both the technologically more-or less-advanced country always increases consumer surplus and social welfare. In addition, the producer surplus will increase if the harmonization partner has a higher technology level, whereas it may decrease if the partner has a lower technology level. It also shows that if most domestic export goods are in sectors with conversion costs above a certain level, harmonizing standards with a technologically more-advanced country should be prioritized. Such strategies, moreover, should be emphasized when there exists a large technology gap among countries. Lastly, the paper considers another scenario, in which harmonization leads to the foreclosure of the non-member firm from the member countries’ markets. It shows that harmonization improves the social welfare of a mid-level technology country regardless of its partner’s technology. It also shows that the country should prioritize harmonization with the technologically less-advanced country. Originality/value - Though some of the existing studies consider the welfare effects of harmonization, their main assumption is that firms have the same conversion technology. Since complying with standards often requires substantial technological advancement and technical expertise, harmonization of compatibility standards between countries with gaps in technological ability carries different implications. This paper investigates the welfare effects of this harmonization and determines an optimal harmonization strategy while considering technological asymmetry among countries in standards compliance.

CAN THE OPTIMAL TARIFF BE ZERO FOR A GROWING LARGE COUNTRY?

AbstractCan the optimal tariff be zero for a growing large country? To pursue the possibility, we extend the Rivera‐Batiz–Romer lab‐equipment model of endogenous technological change to include asymmetric countries, import tariffs, and either homogeneous or heterogeneous firms. Each country's domestic revenue share is a sufficient statistic for its long‐run growth rate, but it is not for its long‐run welfare. A unilateral tariff reduction by either country always increases the balanced growth rate. A zero tariff is locally optimal for a country under a mild condition, which is automatically satisfied at a symmetric balanced growth path with the zero tariff.

Global supply chains, trade agreements and rules of origin

AbstractFree Trade Agreements (FTAs) usually come with restrictions on the use of intermediate inputs in order for final goods to qualify for free trade. I focus on Rules of Origin (RoO), which limit expenses on nonmember country's intermediate inputs. In a three‐country FTA formation game, I introduce international trade in intermediate inputs and RoO restrictions. In the case of symmetric countries, I show that as countries become more involved in global supply chains, measured by their input shares in foreign final goods production, global free trade is less likely to be a stable equilibrium outcome. Free riding is the main problem preventing countries from liberalising trade. Countries are better off being nonmembers of FTAs between the other two countries relative to global free trade. Rules of Origin can solve this problem by limiting the benefits countries get from other countries' free trade agreements. In the case of asymmetric countries, an additional incentive exists for the smaller country not to join: such a country gives up more than it gains from joining an FTA for a sufficiently high degree of asymmetry in country sizes. I show that global free trade is a stable Nash equilibrium under a larger region of asymmetric country parameter space in the case of RoO than without it. Therefore, it is shown that RoO is essential in order to attain global free trade.

Reconnoitering the Sustainable Relationship between Revenue Income and GDP: A Comparative Study of Asymmetric Countries in the World

This paper applies panel unit root test, country Pedroni cointegration test (PCT), Phillips-Peron cross section test (PPCST), vector error correction test and Johansen normalized cointegrating test (JNCT) for estimates the coefficients in the short-run and in the long-run to examine the inter-temporal relationship between the government revenues income and GDP. The paper took into account fifteen asymmetric countries with three income groups over the period from 2001 to 2016. The study justified the long run relationship between the articulated variables in the country PCT and the test results unearthed that four statistics out of seven on different indexes exhibited one percent level of significance. In the upper middle income country category, other than Brazil and Sri Lanka, rest of three countries showed a long run relationship, i.e. the study outcome reconnoitered the existence of a long run relationship between the two articulated variables. Decisively, the outcome of JNCT suggests that in the long run if the government revenue upsurge one percentage point then GDP growth rate will rise 0.037 and 0.28 percentage point for the countries that belong to high income and the upper middle income respectively. Meanwhile, the test find a negative result that allied to lower middle income nations, GDP growth rate will plummet 0.039 percent point due to one percent rise in revenue income.

Effect of Trade Liberalization on Asymmetric Countries for Homogenous and Differentiate Product: Case of Pakistan-China Free Trade Agreement

The study performs an empirical test to assess the impact of the Pakistan-China Free trade agreement (FTA) on Pakistan, China, and the World's exports under homogenous and differentiated products. This study employs the modeling with Poisson specification with Poisson Pseudo-Maximum Likelihood method for the estimations. The results of empirical test show that the effect of FTA on the FTA and Non-FTA countries is greater in the differentiated product as compared to the homogenous product. Therefore, one of the most important policy implications provided by this study is that export enterprises need to concentrate on differentiated products as compare to the homogenous products after the implementation of the Pakistan-China FTA. Moreover, the previous literature concluded that Pakistan-China FTA was more beneficial for China as compared to Pakistan. However, according to this study, if Pakistani enterprises focus more on differentiated products as compared to homogenous products, then it will be equally beneficial for both Chinese and Pakistani enterprises. This study will contribute to the literature by considering the Bertrand competition between asymmetric countries and find out the effect of the FTA on these three countries. It considers China, Pakistan, and the Rest of the World as first, second, and third countries.