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The Welfare Effects of Imperfect Harmonization of Trade and Industrial Policy

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  • Gatsios, Konstantine
  • Karp, Larry

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) is chosen noncooperatively. 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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 335.

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Date of creation: Oct 1989
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Handle: RePEc:cpr:ceprdp:335

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Related research

Keywords: Customs Union; Industrial Policy; Oligopoly; Trade Policy;

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Cited by:
  1. Karp, Larry, 1995. "Monopoly Power can be Disadvantageous in the Extraction of a Durable Nonrenewable Resource," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4cs0m1vb, Department of Agricultural & Resource Economics, UC Berkeley.
  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. Conconi, P., 2000. "Trade Bloc Formation Under Imperfect Competition," The Warwick Economics Research Paper Series (TWERPS) 571, University of Warwick, Department of Economics.
  4. 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.

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