Strategic Trade Policy Research Articles

Business and Government in Industrializing Asia.

AbbreviationsPrefaceContributorsMap1 Business, Government and Development: Northeast and Southeast Asian ComparisonsAndrew MacIntyre2 Strategic Trade Policy: the Northeast Asian ExperienceTrevor Matthews and John Ravenhill3 Between the State and the Market: the Case for Eclectic Neoclassical Political EconomyIyanatul Islam4 The Realignment of Business-Government Relations and Regime Transition in TaiwanYun-han Chu5 Changing Patterns of Business-Government Relations in South KoreaChung-in Moon6 The Dynamics of Business-Government Relations in Industrialising MalaysiaAlasdair Bowie7 From Clientelism to Partnership: Business-Government Relations in ThailandAnek Laothamatas8 Booty Capitalism: Business-Government Relations in the PhilippinesPaul HutchcroftPower, Prosperity and Patrimonialism: Business and Government in IndonesiaAndrew MacIntyre10 Business, Politics and Policy in Northeast and Southeast Asia<

Endogenous sequencing in strategic trade policy games under uncertainty

This paper examines a strategic trade policy game with endogenous timing. A trade-off between commitment and flexibility is identified. The equilibrium timing of trade policy decisions is shown to highly depend on the degree of demand uncertainty. When demand uncertainty is low, countervailing duties will never be used because the home government always sets its import tariff before the foreign government sets its export subsidy. When demand uncertainty reaches a threshold level, the home government starts to find it optimal to move second with positive probability. As a result, we provide an economic rationale for the prevailing use of countervailing duties in practice.

Common Market with Regulated Firms

We examine the effect of bilateral trade in a concentrated industry under Cournot competition, when firms are regulated by national agencies who care about national social welfare. We allow for differences in costs and market sizes and for asymmetric information between regulatory agencies and regulated firms. A national regulatory policy may or may not be publicly observed by foreign competitors. We show that it is optimal to allow states to subsidize their domestic firms: bilateral trade improves the allocative efficiency and reduces the agency costs of regulation. Strategic trade policy effects that appear when regulatory contracts are public are beneficial to both states and reduce incentive costs as well as allocative inefficiencies. Results extend to the case of segmented markets with export costs when states are allowed to use export subsidies as well as to regulate domestic production. They also extend under perfect information to an arbitrary number of states and regulated firms, to the existence of private importing firms and of a not too large export market.

Durability and strategic trade are there rents to be captured?

This paper analyzes strategic trade policy when home and foreign duopolists produce a durable good that is either sold or leased in a third country. Durability is important for two reasons: it characterizes most of the products discussed in the strategic trade literature, and it also calls for explicit dynamic modeling. For duopolists who sell their product in a third-country market, this paper finds the optimal policy to be a tax on domestic output. For duopolists who lease the good in a third-country market, though, the optimal policy is a subsidy.

Trade policy and learning by doing: the case of semiconductors

The study examines the role of learning by doing for production of different types of semiconductors and how this affects the dynamics of market structure. For erasable programmable read only memories (EPROMs) the learning curve determines aggregate market dynamics, whereas for dynamic random access memories (DRAMs) economies of scale seem to be more important. These results are compared with some stylised facts. For EPROMs, persistence of leadership in product innovation could be observed, whereas for DRAMs, there was leap-frogging in product innovation. Moreover, scope for vertical product differentiation is more enhanced for EPROMs and price competition is less intense. These findings are then related to the problem of identifying the appropriate trade policies in oligopolistic industries. The analysis concerns the antidumping actions undertaken by the European Commission. It is shown how markets enjoying similar patterns of protection have a completely different evolution of market shares for European producers. The conclusion for strategic trade policy is that industry specific features matter crucially.

Playing Favorites: Welfare Effects When Strategic Trade Policy Is Set to Favor Producers

Playing Favorites: Welfare Effects When Strategic Trade Policy Is Set to Favor Producers

Industrial policy and duopolistic trade with dynamic demand

The authors study strategic trade policy in the framework of an explicit dynamic game in which home and foreign duopolists compete in a third-country market for non-competitive rents. Dynamics are introduced on the demand side by assuming demand for the product depends on past consumption of that good. The analysis demonstrates that the perfect equilibrium of the dynamic game can be replicated by a conjectural variations equilibrium, and that optimal policy requires a tax on exports.

The self-organizing economy

Rethinking international trade (collected papers) the age of diminished expectations geography and trade currencies and crises target zones and currency bands trade with Japan peddling prosperity empirical studies of strategic trade policy.

Economic Espionage as Strategic Trade Policy

In an interview on NBC's Expose in September 1991, Pierre Marion, a former Director of the French intelligence service, stated that: It would not be normal that we do spy on the (United) States in political matters; we are really allied. But in the economic competition, in the technological competition, we are competitors; we are not allied (Security Management 1992). Is it 4normal for competing nations to conduct economic espionage? This paper will show that there may be indirect strategic benefits from spying that go beyond the obvious direct benefits from access to valuable economic secrets. In such situations, economic espionage acts as a form of strategic trade policy that shifts profits from foreign firms to domestic firms and potentially improves national welfare. Porteous (1993) has sketched a similar argument. Many types of sensitive information may be obtained by means of economic espionage. If spying unearths the blueprints of a prodluct or the source code of software, the fixed costs associated with research and development can be reduced for domestic firms. In such a case, there are direct benefits for domestic firms, but no strategic benefits because the behaviour of the domestic firms in global markets will remain unchanged. On the other hand, information on contract bids, marketing plans, or costs of rival foreign firms may give rise to strategic benefits in global markets even though there are no direct benefits. Finally, if the production technology of foreign firms is obtained, there will be both a direct benefit from lower total costs for domestic firms and a strategic benefit on global markets due to lower marginal costs. This paper will focus on espionage performed to obtain marginal-cost reducing production technologies. While this paper considers espionage by the government on behalf of domestic firms, the analysis could easily be adapted to allow for spying by

Strategic trade policy: a review of the theoretical debate

This paper reviews the recent debate on strategic trade policies, whose main conclusion is that while the real world may be far from the condition of perfect competition considered by standard theory, free trade remains the best ruleofthumb policies. In the second part of the paper several issues are reviewed which suggest that the debate is far from complete. Two aspects, in particular, require closer scrutiny: (i) the implications of multiple equilibria and pathdependency phenomena in a world in which innovation activities have crucial effects on trade performance; (ii) the problems of collective action associated with the constitution of a free trade regime.

International trade policies, industrialization, and economic development

During the 1950s and 1960s, most developing nations, particularly the larger ones, strongly opted for a policy of import substitution industrialization (ISI). This was based on heavy protection and generally led to very inefficient industries. Since the early 1970s, an increasing number of developing countries deregulated their economies and liberalized trade, and this stimulated efficiency and growth. Some developing nations also tried strategic trade policies and to endogenize growth (as postulated by endogenous growth theory), but with only limited success. It seems impossible and inconsistent under the new international trade rules, however, for other developing countries to duplicate the East Asia “miracle,” which was based on strong government support for domestic industry while stimulating competition and efficiency among domestic firms. The successful completion of the Uruguay Round is expected to greatly benefit developing countries through continued deregulation and increased access to developed...

Strategic Trade Policy Design with Asymmetric Information and Public Contracts

This paper examines strategic trade policy under asymmetric information with publicly observable contracts. We analyse both the cases of unilateral and bilateral intervention. We find that the requirement of incentive compatibility undermines the strategic precommitment effect when public funds are costly, even with no restrictions on the form of the policies. Second, when firms sell substitute goods, the introduction of a rival interventionist government may reduce the cost of informational rents to each government. Third, it turns out that under bilateral intervention there exists a continuum of symmetric equilibria with levels of output and corresponding levels of welfare in the exporting countries which can be ranked. The requirement of ex post participation constraints for the firm limits the set of subsidies which can be offered to the firm. In particular, under bilateral intervention, the equilibrium levels of output which are implemented under adverse selection are below their values under ex ante uncertainty, i.e., below the equilibrium levels of output which are achieved when firms sign their contracts before the realization of their costs.

The New Trade Theories

Contrary to the presumptions of conventional trade theory greatest part of the world trade consists of trade flows between developed countries and high proportion of trade flows is intra- industry rather than inter-industry as suggested by conventional trade theory under imperfect competition and scale economies has grown rapidly since the Iate 1970s. The aim of this study, therefore, to survey the central themes of recent international trade literature under imperfect competition and scale economies. However, this study aims to survey only some central themes of literature rather than being comprehensive. In the first part of the study, having briefly examined the preliminary studies emphasizing the importance of scale economies in international trade theory, early studies of new trade theories literature are analyzed. The main concern in the second part is the analysis of monopolistic competition trade theories within the context of reasons for trade, composition and volume of trade as well as the welfare impacts of trade In the third chapter, oligopolistic trade theories are discussed. Although the main emphasis of this study on the positive aspects of new trade theories, normative implications of the new trade theories are also highly important since it causes a theoretical debate due to its protectionist policy recommendations. For this purpose, policy implications of oligopolistic trade theories which is known as strategic trade policies are also examined in the study.

Union Behavior, Industry Rents, and Optimal Policies

This paper examines the supposed welfare gains from strategic trade and industrial policies in the U.S. steel industry. Strategic policies to capture labor rents lead to an endogenous response which greatly diminishes their importance. On the other hand, reducing domestic labor market distortions results in welfare gains nearly as large as those from optimal trade and industrial policies. The paper concludes that the focus on labor rents as the subject of U.S. trade and industrial policy is overstated, at least in manufacturing industries such as integrated steel.

Union Behavior, Industry Rents, and Optimal Policies

This paper examines the welfare gains from strategic trade and industrial policy in the U.S. steel industry, focusing particularly on the potential gains from capturing labor rents. I take into account product market distortions such as price-setting firms, factor market distortions in the form of union-created labor rents, and the presence of fixed capital and underutilized capacity in U.S. steel production. ; The existence of underutilized capacity means that firms respond to protection by reducing the share of labor in production, eliminating the rents targeted by the policy and thus reducing the potential gains. At the same time, the union takes advantage of protection to skim off rents, further reducing the effectiveness of the optimal policy. Taking into account these endogenous responses substantially reduces the welfare gains from optimal policies. And simply reducing domestic labor market distortions results in a welfare gain nearly as large as that from optimal policies. This suggests that the focus on labor rents as the subject of U.S. trade and industrial policy is overstated, at least in manufacturing industries such as integrated steel.

Why Industrial Policies Fail: Limited Commitment

The strategic effects of subsidies on output and subsidies on investment differ substantially in dynamic models where a government's commitment ability is limited. Output subsidies remain effective even as the period of commitment vanishes, but investment subsidies may become completely ineffective. This difference has been obscured because most existing models of strategic trade policy are static.

Development economics and the underdevelopment of sub‐Saharan Africa

AbstractFor the last fifteen years most countries in sub‐Saharan Africa—already the poorest region of the developing world—have experienced further declines in living standards, and in some cases, starvation. It is argued that this represents a test case for development economics, which has been a particularly controversial branch of the discipline in recent years. Two insights from the early ‘development economies’ of the 1950s—rural capital market imperfections and early ‘strategic trade policy’ arguments for protection—are shown to have continuing relevance in explaining African under‐development. The argument is developed by reference to two large Asian countries—India and Indonesia—which lagged behind Africa in the 1980s, but which have now overtaken it, and whose experience, we argue, can suggest valuable ways forward for Africa in the 1990s.

Surveys in International Trade.

List of Figures. List of Tables. List of Contributors. 1. Introduction and Overview: David Greenaway and L. Alan Winters (University of Nottingham and University of Birmingham). 2. The Theory of International Trade: Rodney Falvey (Australian National University). 3. Imperfect Competition and International Trade: Alasdair Smith (University of Sussex). 4. Testing Trade Theory: Edward Leamer (University of California, Los Angeles). 5. The Theory of Protection: James Anderson (Boston College). 6. The Political Economy of Trade Policy: Stephen Magee (University of Texas at Austin). 7. Strategic Trade Policies: Didier Laussel (Universite da Aix--Marseille II and Christian Montet, University of Montpellier). 8. Trade and Development: Paul Collier and Jan Willem Gunning (University of Oxford, and Free University Amsterdam). 9. International Economic Integration: Robert Hine (University of Nottingham). 10. Services Trade: Andre Sapir and Chantal Winter (Universite Libre de Bruxelles). 11. The Relationship between International Trade and International Production: John Cantwell (University of Reading). Index.

STRATEGIC TRADE POLICY WITH INTERNATIONALLY OWNED FIRMS*

ABSTRACTThe consequences of international firm ownership for strategic trade policy are examined both in a general and in a simple linear model of an international duopoly with two governments using production subsidies as policy instruments. At first sight, the case for strategic trade policy seems to be weakened, because international ownership reduces a government's incentive for rent‐shifting. Closer inspection shows, however, that there are ownership structures leading to optimal policies which induce the duopolists to behave more collusively. This tends to resolve the conflict between national and international rationality in a policy game with retaliation and makes strategic trade policy look more attractive.

Rent Shifting and Rent Sharing: A Re-Examination of the Strategic Industrial Policy Problem

This paper reexamines the market structure problem in the strategic trade policy literature. It is shown that rent sharing between the home union and the home firms raises total home industry rents regardless of whether the international duopoly is Cournot or Bertrand. Furthermore, home welfare also rises with cooperation if the international industry consists of more than two firms, if the industry is faced with entry, and if there is domestic consumption. This paper shows that rent sharing can be a robust strategic industrial policy and can be interpreted as a solution to the market structure dilemma.