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The Welfare Effects of Imperfect Harmonization of Trade and Industrial Policy

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  • Gatsios, Konstantine
  • Karp, Larry S.

Abstract

Partial cooperation in setting trade policy may be worse than no cooperation for countries who form a customs union. The paper investigates three situations where this is likely to occur. First, if the countries forming the union comprise too small a percentage of the non-competitive sector of the industry, their cooperation may be disadvantageous for essentially the same reason that a merger may be disadvantageous in oligopolistic industries. Second, even if the countries forming the union comprise the entire non-competitive sector of industry, cooperation on trade policy may be disadvantageous if industrial policy (e.g. investment subsidies) are chosen non-cooperatively. The reason is that cooperation in trade policy may exacerbate the inefficiencies created by non-cooperation at an earlier stage. Third, cooperation in choosing trade policies may encourage excessive investment by competitive importers and thus reduce the demand faced by the oligopolists.

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Bibliographic Info

Paper provided by International Agricultural Trade Research Consortium in its series Working Papers with number 51256.

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Date of creation: 1989
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Handle: RePEc:ags:iatrwp:51256

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Related research

Keywords: Trade and industrial policy; imperfect competition; customs union; International Relations/Trade;

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Cited by:
  1. Karp, L., 1992. "Monopoly power can be disadvantageous in the extraction of a durable nonrenewable resource," Discussion Paper Series In Economics And Econometrics 9209, Economics Division, School of Social Sciences, University of Southampton.
  2. Rothschild, R. & Heywood, John S. & Monaco, Kristen, 2000. "Spatial price discrimination and the merger paradox," Regional Science and Urban Economics, Elsevier, vol. 30(5), pages 491-506, September.
  3. Huizinga, Harry & Nielsen, Søren Bo, 2005. "Capital Income Tax Coordination and the Income Tax Mix," Working Papers 24-2005, Copenhagen Business School, Department of Economics.
  4. 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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