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Bilateralism Is Good: Trade Blocs and Strategic Export Subsidies

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  • Collie, David R

Abstract

This paper considers the effect of exogenous trade bloc enlargement in a multicountry version of the Brander-Spencer export subsidy game. In the single-shot game, it is shown that trade bloc enlargement leads to a reduction in the Nash equilibrium export subsidies and thereby increases the welfare of the exporting countries. Although the welfare of the importing countries decreases, world welfare may increase if the export subsidies are financed by distortionary taxation. When the export subsidy game is infinitely repeated, it is shown that trade bloc enlargement reduces the critical discount factor making it easier to sustain free trade. Copyright 1997 by Royal Economic Society.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 49 (1997)
Issue (Month): 4 (October)
Pages: 504-20

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Handle: RePEc:oup:oxecpp:v:49:y:1997:i:4:p:504-20

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Cited by:
  1. Kyle Bagwell & Robert W. Staiger, 2002. "GATT-think," Discussion Papers 0102-39, Columbia University, Department of Economics.
  2. Richard Baldwin, 2008. "Big-Think Regionalism: A Critical Survey," NBER Working Papers 14056, National Bureau of Economic Research, Inc.
  3. Collie, David R., 2000. "State aid in the European Union: The prohibition of subsidies in an integrated market," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 867-884, August.
  4. Kyle Bagwell & Robert W. Staiger, 2000. "Strategic Trade, Competitive Industries and Agricultural Trade Disputes," NBER Working Papers 7822, National Bureau of Economic Research, Inc.
  5. Miller, Andrew D. & Langley, Suchada V. & Chambers, William, 2003. "Current Issues Affecting Trade And Trade Policy: An Annotated Literature Review," Working Papers 14606, International Agricultural Trade Research Consortium.
  6. Yochanan Shachmurove & Uriel Spiegel, 2004. "Size Does Matter: International Trade and Population Size," PIER Working Paper Archive 04-035, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  7. Winters, L. Alan, 1996. "Regionalism versus Multilateralism," CEPR Discussion Papers 1525, C.E.P.R. Discussion Papers.
  8. David Collie, 2002. "Prohibiting State Aid in an Integrated Market: Cournot and Bertrand Oligopolies with Differentiated Products," Journal of Industry, Competition and Trade, Springer, vol. 2(3), pages 215-231, September.
  9. David Collie, 2000. "A Rationale for the WTO Prohibition of Export Subsidies: Strategic Export Subsidies and World Welfare," Open Economies Review, Springer, vol. 11(3), pages 229-245, July.
  10. Mario Marazzi, 2002. "On the fragility of gains from trade under continuously differentiated bertrand competition," International Finance Discussion Papers 735, Board of Governors of the Federal Reserve System (U.S.).
  11. Conconi, P., 2000. "Trade Bloc Formation Under Imperfect Competition," The Warwick Economics Research Paper Series (TWERPS) 571, University of Warwick, Department of Economics.

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