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Protection and International Sourcing

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  • Emanuel Ornelas
  • John L. Turner

Abstract

We study the impact of import protection on relationship-specific investments, organizational choice and welfare. We show that a tariff on intermediate inputs can improve social welfare through mitigating hold-up problems. It does so if it discriminates in favor of the investing party, thereby improving its bargaining position. On the other hand, a tariff can prompt inefficient organizational choices if it discriminates in favor of less productive firms or if integration costs are low. Protection distorts organizational choices because tariff revenue, which is external to the firms, drives a wedge between the private and social gains to offshoring and integration.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 122 (2012)
Issue (Month): 559 (03)
Pages: 26-63

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Handle: RePEc:ecj:econjl:v:122:y:2012:i:559:p:26-63

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References

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  1. Alla Lileeva & Johannes Van Biesebroeck, 2013. "Outsourcing When Investments Are Specific And Interrelated," Journal of the European Economic Association, European Economic Association, vol. 11(4), pages 871-896, 08.
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Citations

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Cited by:
  1. Ana Fernandes & Heiwai Tang, 2010. "The Determinants of Vertical Integration in Export Processing: Theory and Evidence from China," Discussion Papers Series, Department of Economics, Tufts University 0749, Department of Economics, Tufts University.
  2. Staiger, Robert W. & Antras, Pol, 2008. "Offshoring and the Role of Trade Agreements," Scholarly Articles 3374525, Harvard University Department of Economics.
  3. Díez, Federico J., 2014. "The asymmetric effects of tariffs on intra-firm trade and offshoring decisions," Journal of International Economics, Elsevier, vol. 93(1), pages 76-91.
  4. Fernandes, Ana P. & Tang, Heiwai, 2012. "Determinants of vertical integration in export processing: Theory and evidence from China," Journal of Development Economics, Elsevier, vol. 99(2), pages 396-414.
  5. Conconi, Paola & Legros, Patrick & Newman, Andrew F., 2012. "Trade liberalization and organizational change," Journal of International Economics, Elsevier, vol. 86(2), pages 197-208.
  6. Maya Cohen-Meidan, 2009. "Vertical Integration and Trade Protection: The Case of Antidumping Duties," Discussion Papers 08-034, Stanford Institute for Economic Policy Research.
  7. Friberg, R & Tinn, K, 2013. "Holdup and Comparative Advantage," Working Papers 12193, Imperial College, London, Imperial College Business School.

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