Strategic Trade Research Articles

An Empirical Study on the Japanese Import Restriction on the Agricultural Manufactures

This paper investigates the degree of the restriction on the Japanese imports of the agricultural manufactures for the period of 1976 to 2015 by employing annual trade data. We identify the degree of policy interference by the difference of two indicators, namely revealed comparative advantage and net export ratio. Our results indicate that Japan is comparatively dis-advantaged in the imports of the agricultural manufactures. With surprise, we find no evidence that Japan has taken strategic trade policies to improve the comparative advantage by import restrictions.

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

China y América Latina: ¿Socios estratégicos o competidores?

Rev.esc.adm.neg
 This document has as main objective to discuss the dual role that China is playing in Latin America, on one hand, a strategic trade partner in Asia, source of foreign direct investment (FDI) and key ally in the international arena, on the other hand, China is a formidable competitor particularly in the manufacturing sector. To reach the main objective, we make a brief description of the international trade relation between China and Latin America for the last 15 years, also, a review of the investment flows in different economic sectors, and lastly, a description of the political and diplomatic relation between Latin America and China. From this, it can be inferred that the bilateral relation is prominently framed by the trade of commodities from Latin America to China and the Chinese investment in the sourcing of natural resources.

Strategic trade policy with bargaining over managerial contracts

This paper re‐examines the well‐known activist regime's inefficiency (governments set export subsidies) in a sales–delegation game with owner–manager bargaining over contracts. Contrary to the received literature, this bargaining process may (a) induce governments to set a tax if products are not too substitute or complements and (b) lead to an efficient (inefficient) equilibrium provided that products are sufficiently differentiated (not too complements). Therefore, unilateral public intervention can be optimal: in case of rival governments' retaliation, under appropriate product competition degrees, welfares are larger than under free trade even for small managers' power. Thus, managerial delegation practices are crucial also for international trade issues.

Strategic trade in pollution permits

Markets for pollution have become a popular regulatory instrument. In this article we investigate the implications of strategic trade in pollution permits. The permit market is developed as a strategic market game, where all firms are allowed to behave strategically and their roles as buyers or sellers of permits are determined endogenously with price-mediated trade. In a second stage, firms transact on a product market and we allow for a variety of market structures. We identify a unique equilibrium in permit exchange, investigate the properties of this equilibrium, and consider the effect of strategic behavior in the product market.

Artificial islands as a manifestation of glocalisation

The article is devoted to economic reasons for creation of artificial lands, including artificial islands, and problems related to their functioning. The scientific achievements of economic geography constitute a theoretical basis of the analysis. Economic reasons for constructing artificial islands in particular may, to a large extent, be explained by reference to a new economic geography of Paul Krugman. Therefore, the Authors associate the dynamically developing phenomenon of building artificial islands with the process of glocalisation. On the other hand, functioning of artificial islands – in their opinion – may basically be reduced to a concept of the balance of a company, as an artificial island may be treated as its counterpart.

The Development of the Strategic Trade Policy and Its Application in China

Strategic trade policy theory, first advocated in 1985, is an important part of the new trade theory. Strategic trade policy emphasizes the importance of public policy under the monopolistic competition, leaving some space for government to increase the national welfare. This article presents the background and the basic framework of the strategic trade policy, and discusses the development of the strategic trade theory internationally and for its application in China. It points out that strategic trade policy develops fast and it needs to integrate more characteristics of developing countries like China into consideration. The measure of the strategic trade policy should be improved in China. The effect of the strategic trade policy becomes more complicated than expected because nothing stands still. Regional trade agreements are the new hidden form of strategic trade policy for China and requires further research.

Quality and Process Management Systems in the UAE Maritime Industry

The growing maritime industries in the global economy signify the need for applying the science of quality management systems to study the interdisciplinary nature of products and services offered by this sector. In particular, considering the strategic location and liberal trade policies, the maritime sector in the United Arab Emirates (UAE) is considered a critical player and key enabler of international trade. To further strengthen and enhance the role of UAE's maritime sector in supporting the global maritime industry, it is highly desirable to identify the contributing factors that influence business processes and service efficiency and empirically verify the findings. This study builds on the significance of Quality Management Systems in Marine Industry with special focus on the UAE's maritime sector.

The Politics of International Trade

Traditional international trade models explain comparative advantage and describe aggregate gains for a country from trade and from terms-of-trade improvement but do not address the politics of international trade policy. A positive or predictive model that studies the politics of trade policy requires two premises, both with public choice origins: (1) that political self-interest underlies policy determination of trade policy rather than social-welfare objectives, and (2) politically assignable rents are preferred to budgetary revenue from trade restrictions and aggregate gains from terms-of-trade improvement. Originating political-economy models of protectionism and reciprocal trade liberalization acknowledge on both premises. Subsequent popular (and popularly replicated) models of trade policy include the first premise but not the second. The popular models are inconsistent with the actual conduct of trade policy. We also present public-choice perspectives on strategic trade policy, the most-favored nation clause, preferential trading, duty-free zones, globalization, and direct voting on trade policy, and we review and interpret empirical evidence.

Poverty, corruption, trade, or terrorism? Strategic framing in the politics of UK anti-bribery compliance

What explains longstanding UK non-compliance with international anti-bribery norms? Drawing on evidence from a comparative study of state compliance with the Organization for Economic Cooperation and Development (OECD) anti-bribery Convention and building on the literature on ‘framing’ in Sociology and International Relations, this article identifies and illustrates the impact of strategic policy framing on UK anti-bribery policy in the years following the United Kingdom’s commitment to criminalize transnational business bribes, in 1997. The research examines the way in which anti-bribery proponents and opponents framed the practice of transnational bribery differently across four distinct policy contexts in the United Kingdom: international development and poverty reduction, domestic anti-corruption, strategic trade, and—following 11 September 2001—international anti-terrorism. The analysis shows that: (a) policy advocates’ choice of frame crucially affected the timing and scope of UK anti-bribery legislation and the extent of UK (non)compliance with international anti-corruption law; and (b) the expedient frame was not necessarily the most conducive to full compliance.

SEC Rule 10b5-1 Plans and Strategic Trade around Earnings Announcements

We examine how corporate insiders profit from private information about future earnings performance through SEC Rule 10b5-1 trading plans. We first provide evidence consistent with insiders using 10b5-1 plans to sell stock in advance of disappointing earnings results. We then examine insiders who not only currently use 10b5-1 plans, but also actively traded their own company’s stock prior to the availability of such plans. We find that this group traded aggressively on earnings information prior to 10b5-1, but then shifted their aggressive trading into 10b5-1 plans after the availability of planned trading. We also document several questionable patterns associated with their trading behavior. Namely, their trades tend to be irregularly timed, close to the plan initiation date, infrequent in nature, and executed during traditional earnings blackout periods. In terms of firm characteristics, these insiders are more likely to be employed at firms with weaker firm governance and lower institutional ownership.

Strategic trade policies with first-mover and second-mover advantages in a vertical structure

ABSTRACTWith strategic trade policies, we consider first- and second-mover advantages in a vertical structure given the two-part tariff contract (composed of the input price and the fixed fee) of an upstream firm, where a home and a foreign final-good firms export to a third-country market. We find that the upstream firms’ and governments’ preference orderings over sequential versus simultaneous play and over free trade versus a regime of subsidies contrast with early results in the strategic trade policy. Thus, the endogenous market structure is that (i) the potential leader chooses the Leader role with quantity strategies, and the equilibrium trade regime is unilateral subsidy regardless of the nature of goods; (ii) with price strategies, the potential leader chooses the simultaneous timing, and the equilibrium trade regime is bilateral taxes (free trade) when goods are substitutes (complements).

Environmental Protection for Sale: Strategic Green Industrial Policy and Climate Finance

Industrial policy has long been criticized as subject to protectionist interests; accordingly, subsidies to domestic producers face disciplines under World Trade Organization agreements, without exceptions for environmental purposes. Now green industrial policy is gaining popularity as governments search for low-carbon solutions that also provide jobs at home. The strategic trade literature has largely ignored the issue of market failures related to green goods. I consider the market for a new environmental good (like low-carbon technology) whose downstream consumption provides external benefits (like reduced emissions). Governments may have some preference for supporting domestic production, such as by interest-group lobbying, introducing a political distortion in their objective function. I examine the national incentives and global rationales for offering production (upstream) and deployment (downstream) subsidies in producer countries, allowing that some of the downstream market may lie in nonregulating third-party countries. Restraints on upstream subsidies erode global welfare when environmental externalities are large enough relative to political distortions. Climate finance is an effective alternative if political distortions are large and governments do not undervalue carbon costs. Numerical simulations of the case of renewable energy indicate that a modest social cost of carbon can imply benefits from allowing upstream subsidies.

Strategic Trade Policy and Network Compatibility

We consider strategic trade policy for information and communication technology (ICT) product markets with international rivalry. Usually, ICT products exhibit network externalities and product compatibility (i.e., network compatibility). We demonstrate that the optimal strategic trade policy depends on the degree of network compatibility of ICT products. Furthermore, using an endogenous decision game for strategic variables (i.e., quantity and price), we consider the relationship between the optimal strategic trade policies and the endogenous mode of competition.

Cournot-Bertrand competition: a revisit of strategic trade policy in the third-market model

Purpose – The purpose of this paper is to discuss the optimal policy settings of the home government for any combination of strategic variables adopted by home and foreign firms under Brander and Spencer’s third-market model framework. Design/methodology/approach – This paper follows all the assumptions of Brander and Spencer with only two modifications: firms produce differentiated products, and firms choose different strategic variables. A two-stage game is set and the subgame-perfect Nash equilibrium is deduced following backward induction. Findings – The authors arrive at a general, simple rule to determine the optimal policy of the home government for any combination of strategic variables: regardless of the strategic variable of the domestic firm, the optimal policy of the home country is an export subsidy (tax) as long as the foreign firm’s strategic variable is output (price). The optimal subsidy or tax of the home country is shown to move the equilibrium to the Stackelberg equilibrium where the domestic firm behaves as the leader while the foreign firm behaves as a follower under free trade. With appropriate interpretations and a suitable caveat, the above results still hold in the case with multiple foreign firms which may choose different strategic variables. Originality/value – This paper fills the gap in the literature, and provides some more general results not easily detected in the original model of Brander and Spencer or Eaton and Grossman.

Macau and Brazil: from the World Trade Organization to a major gaming city

Purpose– The purpose of this paper is to review the present status and relationship of Macau to Brazil and to a provide the historical context for that relationship.Design/methodology/approach– This paper takes the approach of interviews, an extensive review of Portuguese and English language periodicals of Macau, Brazil, USA extending back to 1950s, and a review of the key secondary literature.Findings– Efforts to promote a relationship between Macau and Brazil since 1961 have been laudable, but have not resulted in either a meaningful economic relationship or systematic cultural links.Practical implications– Trade-wise Hong Kong is much better positioned to interface with Brazil than Macau. Brazil established strategic trade and diplomatic relations with China 25 years prior to Macau’s return to China in 1999 and without any intermediation by the city.Social implications– A strategic plan is needed to develop Macau’s links to Brazil based upon that country’s vast array of cultural strengths, which include sports, music, dance, religion, language, education, cuisine, environment resources, technology and the presence of a significant Macanese Diaspora.Originality/value– There is a shortage of analysis on the status of the relationship of Brazil to China, Macau and the Lusophone world.

Environmental Protection for Sale: Strategic Green Industrial Policy and Climate Finance

Industrial policy has long been criticized as subject to protectionist interests; accordingly, subsidies to domestic producers face disciplines under World Trade Organization agreements, without exceptions for environmental purposes. Now green industrial policy is gaining popularity as governments search for low-carbon solutions that also provide jobs at home. The strategic trade literature has largely ignored the issue of market failures related to green goods. I consider the market for a new environmental good (such as low-carbon technology) whose downstream consumption provides external benefits (such as reduced emissions). Governments may have some preference for supporting domestic production, such as by interest-group lobbying, introducing a political distortion in their objective function. I examine the national incentives and global rationales for offering production (upstream) and deployment (downstream) subsidies in producer countries, allowing that some of the downstream market may lie in nonregulating third-party countries. Restraints on upstream subsidies erode global welfare when environmental externalities are large enough relative to political distortions. Climate finance is an effective alternative if political distortions are large and governments do not undervalue carbon costs. Numerical simulations of the case of renewable energy indicate that a modest social cost of carbon can imply benefits from allowing upstream subsidies.

Passive Unilateral Cross-ownership and Strategic Trade Policy

Abstract In a Cournot duopoly model in which exporters compete in a third market, this paper revisits the classical issue (dating back to the pioneering work of Brander and Spencer, Export Subsidies and International Market Share Rivalry, 1985) of the strategic trade policy choice in the presence of the passive participation of one firm in the rival. Passive cross-ownership dramatically alters the participating and participated firms’ governments’ choice to apply the strategic trade policy instrument, the equilibria typology and their efficiency properties. In fact, if the share of cross-ownership is sufficiently large, the participated firm’s government finds optimal to tax export. Moreover, beyond an adequately high threshold, cross-ownership modifies the equilibrium from the activist regime for both countries to an asymmetric regime in which only the participating firm’s government intervenes. In addition, in the case of the traditional common activist regime equilibrium, the classical prisoner’s dilemma game structure may disappear.

Strategic Subsidies for Green Goods

Globally and locally, government support policies for green goods (like renewable energy) are much more popular internationally than raising the cost of bads (as through carbon taxes). These support policies may encourage downstream consumption (renewable energy deployment) or upstream development and manufacturing of those technologies. The use of subsidies — particularly upstream ones — is disciplined by World Trade Organization agreements, and its subsidies code lacks exceptions for transboundary externalities like human health or resource conservation, including those related to combating global climate change. The strategic trade literature has devoted little attention to the range of market failures related to green goods. This paper considers the market for a new environmental good that when consumed downstream may provide external benefits like reduced emissions. The technology is traded internationally but provided by a limited set of upstream suppliers that may operate in imperfect markets, such as with market power or external scale economies. We examine the national incentives and global rationales for offering production and consumption subsidies in producer countries, allowing that some of the downstream market may lie in nonregulating third-party countries. Although technology producer countries can benefit from restraints on upstream subsidies, global welfare is higher without them, and market failures imply that optimal subsidies are even higher. We supplement the analysis with numerical simulations of the case of renewable energy, exploring optimal subsidies for the major renewable energy producing and consuming regions and the cost of restrictions on upstream subsidies.

Operating Performance and Strategic Trade Credit

We examine operating performance improvements associated with the extension of trade credit. Our results suggest a positive and significant relation between profitability and prior period trade credit extension. Further findings indicate significantly higher performance and market share for firms extending trade credit in excess of industry competitors with similar characteristics, operational necessities and financial distress levels. These inferences are robust to a number of econometric concerns such as the joint determination of trade credit extension and firm performance. Overall, our evidence is consistent with trade credit management providing a unique channel to improve product market performance.