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Trade imbalances and harmonization of competition policies

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  • Yano, Makoto
  • Honryo, Takakazu

Abstract

The present study constructs a game in which the two countries strategically set competition policies in their respective non-tradable service sectors. These policies affect the countries' utilities through the presence of trade imbalances. We demonstrate that in the presence of persisting trade imbalances, in a Nash equilibrium, the trade-deficit country maintains perfect competition while the trade-surplus country restricts competition. This shows it highly difficult to harmonize their policies to achieve the first best state under the current international trade regime, which is centered around the principle of reciprocity.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 46 (2010)
Issue (Month): 4 (July)
Pages: 438-452

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Handle: RePEc:eee:mateco:v:46:y:2010:i:4:p:438-452

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Web page: http://www.elsevier.com/locate/jmateco

Related research

Keywords: Competition policy Trade imbalances Nash equilibrium Dynamic trade model;

References

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  9. Matsuyama, Kiminori, 1987. "Current account dynamics in a finite horizon model," Journal of International Economics, Elsevier, vol. 23(3-4), pages 299-313, November.
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  11. Ono, Y. & Shibata, A., 1990. "Spill-Over Effects Of Supply-Side Changes In A Two-Country Economy With Capital Accumulation," ISER Discussion Paper 0232, Institute of Social and Economic Research, Osaka University.
  12. Yano, Makoto, 2001. "Trade Imbalance and Domestic Market Competition Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 729-50, August.
  13. Richardson, Martin, 1999. "Trade and Competition Policies: Concordia Discors?," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 649-64, October.
  14. Yoshiyasu Ono & Shinsuke Ikeda, 1996. "Fiscal policy, wealth divergence, and lifetime utility," Journal of Economics, Springer, vol. 64(3), pages 265-280, October.
  15. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  16. Bernard Hoekman, 1997. "Competition Policy and the Global Trading System," The World Economy, Wiley Blackwell, vol. 20(4), pages 383-406, 07.
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