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Tariff strategies and small open economies

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Author Info
Pascalis Raimondos-Møller
Alan D. Woodland

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Abstract

In this paper we examine the issue of optimal tariffs for a small economy that trades with a large economy. We define "small" and "large" in the sense that the world prices are determined solely by the large country, and, therefore, the small country faces exogenously given world prices. Within this framework it is shown that there exist situations in which the small country has an incentive to behave as a Stackelberg leader by committing itself to a non-zero optimal tariff. Although the small country is unable to directly affect world prices, by pre-committing to a non-zero trade tax it may induce a reduction of the large country's optimal trade tax, thereby indirectly improving its terms of trade and welfare.

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File URL: http://economics.ca/cgi/xms?jab=v33n1/02.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 33 (2000)
Issue (Month): 1 (February)
Pages: 25-40
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Handle: RePEc:cje:issued:v:33:y:2000:i:1:p:25-40

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F35 - International Economics - - International Finance - - - Foreign Aid

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Experimental Economics, Springer, vol. 7(1), pages 31-52, March. [Downloadable!] (restricted)
  2. Emily J. Blanchard, 2007. "Foreign Direct Investment, Endogenous Tariffs, and Preferential Trade Agreements," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 7(1). [Downloadable!]
  3. Gjermund Nese & Odd Rune Staume, 2005. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Journal of Industry, Competition and Trade, Springer, vol. 7(1), pages 31-52, March. [Downloadable!] (restricted)
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This page was last updated on 2009-12-21.


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