Optimal Export Policy Research Articles

Centralized decision strategy in ownership investments and export policy

This research explores the optimal export policy of a domestic industry characterized by numerous multinational enterprises (MNEs) co-existing with cross-border ownership investments in foreign firms and exports to a foreign country. We demonstrate that the optimal export policy depends on whether MNEs make centralized or decentralized decisions in ownership investments. With decentralized decision-making, the optimal export policy can be either a subsidy or a tax, while with centralized decision-making, it is a tax. Furthermore, we examine how the optimal trade policy responds to the optimal strategy of centralized decision-making by MNEs. Our results show that under certain circumstances, the optimal trade policy is an export subsidy, and MNEs prefer to voluntarily relinquish centralized decision-making, even when they have the option to control the production levels of foreign partner firms.

Optimal Export Policy With Upstream Price Competition

We present a third‐market model with a vertical trading structure, in which upstream input suppliers engage in homogeneous price competition. We show that, under downstream Bertrand competition, a non‐monotonic export policy may result. Specifically, the optimal policy of the exporting country can turn into a tax–subsidy–tax as the degree of product substitutability rises. We also confirm the conventional result for which the optimal policy is an export subsidy (tax) if there is Cournot (Bertrand) competition downstream, provided that the number of domestic suppliers is at an intermediate level. We further discuss bilateral policy interventions when both exporting countries offer a subsidy/tax to their domestic downstream firms. We show that a non‐monotonic export policy (tax–subsidy–tax) can arise even in this extended setting.

Subcontracting bargaining power and the trade policy

ABSTRACTIn this paper, we consider that the split of surplus from a subcontracting deal depends on the relative bargaining powers of domestic and foreign firms. The finding shows that a domestic optimal export policy is a tax (subsidy) if the bargaining power of the domestic firm is sufficiently small (large). We also demonstrate that a domestic firm’s higher bargaining power increases (may decrease) domestic profit if the export policy is exogenous (endogenous). In the presence of an outsider option, the domestic optimal export policy will be threatened by the outsider option if the domestic firm’s bargaining power is sufficiently small, and thus a large bargaining power increases the optimal export tax. At the same time, the foreign firm may still subcontract to the domestic firm even if the domestic firm has a higher total marginal cost of the intermediate good than the outsider option.

Strategic Trade Policy in the Presence of International Outsourcing in a Duopoly Model

This paper analyzes how domestic government sets its optimal export policy in a duopoly model when its domestic firm can only outsource its input while the rival firm is able to both produce and outsource its input. First we analyze the strategic outsourcing behavior of the foreign firm. We find that the foreign firm’s decisions on whether to outsource input or to make it by itself depend on the trade policy taken by the domestic government. The foreign firm will strategically outsource the entire quantity of its input production to the supplier with an input price higher than its in-house cost, if the domestic firm is subsidized by the domestic government. However, when the domestic firm is being charged a positive export tax by the domestic government, the foreign firm will decide to make input by itself despite the lower input price under the outsourcing regime. From the domestic government’s point of view, we find that the conditions for the foreign firm’s decisions correspond to the domestic social welfare maximization problem. When the foreign firm chooses to outsource its input to the supplier, the domestic government will impose a negative export tax on its firm, namely subsidy. While when the foreign firm chooses to make input by itself, the domestic government will impose an export tax on its firm as trade policy.Keywords: Trade Policy, Export Tax, Subsidy, Outsourcing

Optimal Trade Policy, Foreign Ownership and Corporate Control

This paper constructs a two-country, three-firm trade model with a two-stage game to explore the unilateral optimal export policy under Cournot competition, when the domestic export firm undertakes Cross-border ownership. We find that the optimal export policy is subsidy when domestic multinational does not has control of a local firm through partial ownership. However, the optimal export policy of the domestic country is to levy a tax when domestic multinational has control of a local firm. Moreover, the optimal export policy is free trade if there is no foreign ownership regulation possessed by foreign country.

Symbiotic Production and Optimal Export Policy

This paper constructs a two-country trade model to examine the optimal policies relating to the export of final and intermediate products under Cournot as well as Bertrand competition when firms engage in symbiotic production internationally. The paper shows that given linear demand for the final product, the optimal export policies are to tax the exports of both the final and intermediate goods under symbiotic production, regardless of whether firms engage in Cournot or Bertrand competition in the final good market, which is contrary to the conventional wisdom.

Differentiated Products, Vertical Related Markets, and Optimal Export Policy

This paper studies the optimal export policy in the context of a vertically related industry with differentiated products, and analyzes the effects of the degree of product substitutability and market structure on the determination of such a policy. It is shown that the results obtained in a similar model with homogeneous goods rivalry no longer hold when the goods are differentiated. Indeed, the degree of product substitutability plays an important role in the determination of export policies, and also determines whether a country can be better off under a trade policy war compared to free trade. The use of a differentiated product setting also allows one to compare export policies and countries' welfare levels under both Cournot and Bertrand competition. It is found that the results of the comparison are also sensitive to the degree of product substitutability.

Optimal Trade Policy with Horizontal Differentiation and Asymmetric Costs

This paper examines the optimal export policy under Bertrand competition when the products exhibit horizontal differentiation and production costs are asymmetric. The focus of this paper is on the product-differentiation effect in the determination of the optimal export policy. We show that given that the equilibrium characteristic of a foreign firm's product R&D lies to the left-hand side of its initial level , since the foreign firm has a unit cost advantage and the efficiency of its R&D technology is sufficiently low, a rise in the export subsidy of the domestic country increases a domestic firm's profits and then welfare by extending the degree of horizontal differentiation between the two products. Thus, the optimal export policy under Bertrand competition may turn out to be an export subsidy rather than an export tax. This result is in sharp contrast to that of Eaton and Grossman (1986).

STRATEGIC EXPORT POLICY IN VERTICALLY RELATED MARKETS

ABSTRACTThis paper analyses how strategic export policies are affected by introducing an imperfectly competitive intermediate good into a Bertrand duopoly model with product differentiation, where a home and a foreign final‐good firm export to a third‐country market. It is shown that when the home and foreign markets for the intermediate good are segmented, the optimal export policy towards the final good is a tax. In contrast, under integrated markets, the optimal export intervention is a subsidy. Whether bilateral export intervention is welfare improving compared with free trade, depends on the degree of product differentiation between the home and foreign final goods.

Optimal Trade Policy under Homogeneous Bertrand Competition*

AbstractIn a seminal paper, Eaton and Grossman (1986) conclude that an export tax is optimal if firms produce heterogeneous products and engage in Bertrand price competition. In particular, they made a comment that could be interpreted to mean that even in the case of a homogeneous product, the optimal policy is still an export tax. This paper has re‐examined the case and found that the optimal export policy can be an export subsidy, free trade, or an export tax, depending on the marginal cost differential between the domestic and the foreign firms. Moreover, if government intervention entails a cost, free trade becomes the only optimal policy.

Strategic Export Policy in the Presence of Subcontracting

This paper examines the optimal export policies when ex ante negotiation over subcontract manufacturing occurs between two competing international-firms. It show that it could be optimal for the exporting country to adopt either a different or a parallel trade policy between the two exporting goods (the final product and the subcontracted product). However, a different trade policy that taxes the finalproduct export and subsidizes the subcontracted-product export is not ever optimal. When the exporting firm is a pure subcontractor, taxing the single export (subcontracted product) becomes the only optimal trade policy of the exporting country. Morever, the exporting country imposes a less aggressive trade policy in response given that the importing country inflicts a more aggressive trade policy.

The Time-Consistent Optimal Export Policy, Market Structure, and Time-Non-Separable Preferences

The interplay of time-non-separable (TNS) utility and non-competitive market structure gives rise to a time-consistency issue that changes the optimal export policy prescription vis-à-vis what would obtain in either a time-separable utility setting or in a TNS setting in which firms could credibly commit to a path of output. In particular, in the time-consistent equilibrium both the traditional terms-of-trade exploitation motive for an export tax and the profit-shifting strategic-trade analysis motive for an export subsidy coexist, and the optimal policy prescription depends critically on demand and cost parameters.

Conjectural Variations, Market Power, and Optimal Trade Policy in a Vertically Related Industry

AbstractThe paper introduces the conjectural variations and bargaining approaches into a vertical model wherein a foreign upstream firm supplies one input to two downstream firms that produce differentiated products for the export market. Various downstream firms’ competition modes and upstream's pricing schemes emerge as special cases of this formulation. The authors show that the optimal export policy of a downstream country depends crucially on the downstream firms’ conjectures of rivals’ responses, the upstream firm's pricing schemes, their relative bargaining powers, and the degree of product differentiation. If the upstream's pricing or bargaining power is strong (weak) and if the downstream's degree of competition is high (low), a tax (subsidy) is optimal owing to a strong (weak) vertical profit‐shifting effect and a weak (strong) horizontal effect.

STRATEGIC TRADE POLICY WITH ENDOGENOUS PRODUCT DURABILITY

Using a simple two-period linear durability choice trade model, we examine strategic trade policy in terms of taxes or subsidies levied on duopolistic firms in sales markets. In contrast to earlier parametric durability studies we show that the optimal export policy is not necessarily a tax when product durability is endogenously determined. Our analysis indicates that with endogenous adjustment of durability either a tax, subsidy, or laissez-faire policy (zero subsidy) may be optimal. In addition, we find that any trade policy (tax or subsidy) has the unforeseen effect of changing the firms' product durability. For example, future expected subsidies tend to decrease the domestic firm's product durability while increasing the foreign firm's chosen durability.

Optimal export policy in the presence of informational barriers to entry and imperfect competition

This paper examines government intervention to help exporters overcome informational barriers to entry into foreign markets. Foreign consumers know the quality of a local good but not that of the imported substitute. An exporter who chooses high quality needs to signal this choice to foreign consumers via a high introductory price. Export policy affects both the signaling distortion and competition between exporter and incumbent. The signaling distortion may call for an export subsidy, competition for an export tax. Which policy is adopted in equilibrium depends on industry characteristics. Over time, the export tax tends to rise as the signaling distortion disappears.

Strategic Export Policy in a Differentiated Duopoly: A Note

The purpose of this paper is to further explore how optimal export policies are affected by the nature of oligopolistic competition and the structure of demand. It is shown that (1) the more cost-competitive the home firm is, the higher the optimal level of export intervention becomes; (2) as the goods become better complements, the optimal level of export intervention increases; (3) the nature of the effects of strategic export policies on foreign firms depends on both the mode of competition and the structure of demand.

Imperfect Competition and International Commodity Trade: Theory, Dynamics, and Policy Modelling.

Part I. International Commodity Trade: The determinants of international commodity trade The empirical analysis of commodity trade Part II. Commodity Trade Theory: The demand for traded commodities The supply of traded commodities Equilibrium conditions in commodity trade Summary Part III. Dynamics of Commodity Trade: Specification strategy The demand functions The supply functions Summary Part IV. Empirical Analysis of Commodity Trade: Testing development trade theories Commodity exports of Latin America The demand for commodity imports The demand for commodity exports Characterization of commodity export supply Commodity market price formation Summary Part V. Modelling Trade Repercussions and Trade Policies: The international transmission of income changes Optimal export policies Trade liberalization Summary Annexes: A Data and estimation procedure B Dynamic system of equations C Regression results of model equations D Derivation of equations References

International Shareholdings and Strategic Export Policy

If either (i) domestic residents hold shares of the foreign firm or (ii) foreigners hold shares of the domestic firm, an export subsidy can reduce rather than increase national welfare within the Brander-Spencer model. Two sufficient conditions for such a case are presented. Also discussed are the optimal export policies in the presence of international cross shareholdings. [F 12]

Optimal policies and marketing board objectives

In this paper, we examine optimal tax/subsidy policies with export marketing boards that compete as oligopolists in world markets. By taking a targeting approach to identifying optimal policies, we are able to show how optimal policies vary with the objectives of board, the nature of competition in world markets, as well as assumptions about market segmentation and regulation. In none of the cases examined does a marketing board without tax/subsidy policy replicate the social optimum. Moreover, we show that the policies necessary to attain the social optimum are quite different with the institutional variation considered. Arbitrage and regulation is the only case considered in which the optimal export policy is definitely a tax and in which the marketing board's objective does not affect policy.

Export taxes versus buffer stocks as optimal export policies under uncertainty

Optimal state-dependent export taxes and costly-to-store buffer stocks are compared in their welfare implications for an exporter possessing monopoly power in the international trade of a volatile commodity. Optimal stochastic control is used to derive the optimal buffer stock rules. It is shown that, if the internal and external fluctuations facing the exporter are large, if the storage costs are low, and if the price elasticity of export supply is small relative to that of export demand, the exporter would gain more from a buffer stock than from a optimal export tax. World welfare is always increased by buffer stocks, as opposed to tariffs; and, under some conditions, the foreign country might also benefit and, hence, not retaliate.