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Strategic Tariff Protection, Market Conduct, and Government Commitment Levels in Developing Economies

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  • Delia Ionaºcu
  • Kresimir Zigic

Abstract

We analyze a simple “tariffs cum foreign competition” policy targeted at enhancing thecompetitive position of a domestic, developing country firm that competes with its developed country counterpart on the domestic market and that carries out an innovative (imitative) effort. We evaluate this policy with respect to social welfare, type of oligopoly conduct, information requirement, time consistency, possibility of manipulative behavior and conclude that the most robust policy set-up is that in which the domestic government is unable to precommit to the level of its policy. Finally, we examine this policy, allowing for asymmetric information, and show that the corresponding social welfare may be higher than under perfect

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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp249.

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Date of creation: Jan 2005
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Handle: RePEc:cer:papers:wp249

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Keywords: Optimal tariff protection; Government non-commitment regime; Innovative(imitative) effort; Symmetric versus asymmetric information.;

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  1. Miravete, Eugenio J, 2001. "Time-Consistent Protection with Learning by Doing," CEPR Discussion Papers 2937, C.E.P.R. Discussion Papers.
  2. Aditya Bhattacharjea, 2002. "Infant Industry Protection Revisited," International Economic Journal, Korean International Economic Association, vol. 16(3), pages 115-133.
  3. Zigic, Kresimir, 2000. "Strategic trade policy, intellectual property rights protection, and North-South trade," Journal of Development Economics, Elsevier, vol. 61(1), pages 27-60, February.
  4. Carmichael, Calum M., 1987. "The control of export credit subsidies and its welfare consequences," Journal of International Economics, Elsevier, vol. 23(1-2), pages 1-19, August.
  5. Motta, Massimo, 1992. "Multinational firms and the tariff-jumping argument : A game theoretic analysis with some unconventional conclusions," European Economic Review, Elsevier, vol. 36(8), pages 1557-1571, December.
  6. Dixit, Avinash, 1988. "Anti-dumping and countervailing duties under oligopoly," European Economic Review, Elsevier, vol. 32(1), pages 55-68, January.
  7. Bhattacharjea, Aditya, 1995. "Strategic tariffs and endogenous market structures: Trade and industrial policies under imperfect competition," Journal of Development Economics, Elsevier, vol. 47(2), pages 287-312, August.
  8. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March.
  9. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  10. Das, Satya P., 2002. "Foreign direct investment and the relative wage in a developing economy," Journal of Development Economics, Elsevier, vol. 67(1), pages 55-77, February.
  11. Bester, H. & Petrakis, E., 1991. "The Incentives for Cost Reduction in a Differentiated Industry," Discussion Paper 1991-36, Tilburg University, Center for Economic Research.
  12. Leahy, Dermot & Neary, J Peter, 1999. "Learning by Doing, Precommitment and Infant-Industry Promotion," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 447-74, April.
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