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Free Trade vs Strategic Trade: A Peek into Pandora's Box

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  • Maggi, G.
  • Grossman, G.

Abstract

We investigate whether a welfare-maximising government ought to pursue a program of strategic trade intervention or instead commit itself to free trade when, in the former case, domestic firms will have an opportunity to manipulate the government's choice of the level of intervention. Domestic firms may overinvest in physical and knowledge capital in a regime of strategic intervention in order to influence the government's choice of subsidy.

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Bibliographic Info

Paper provided by Princeton, Woodrow Wilson School - Public and International Affairs in its series Papers with number 190.

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Length: 25 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:fth:priwpu:190

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Postal: PRINCETON UNIVERSITY, WOODROW WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS, PRINCETON NEW- JERSEY 08542 U.S.A.
Phone: (609) 258-4800
Web page: http://www.wws.princeton.edu/
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Keywords: EXPORTS ; TRADE POLICY;

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References

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  1. Barbara J. Spencer & James A. Brander, 1982. "International R&D Rivalry and Industrial Strategy," Working Papers 518, Queen's University, Department of Economics.
  2. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "The Value of Trade Agreements in the Presence of Political Pressures," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(3), pages 574-601, June.
  3. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May.
  4. Schulman, Craig T, 1997. "Free Entry, Quasi-free Trade, and Strategic Export Policy," Review of International Economics, Wiley Blackwell, vol. 5(1), pages 83-100, February.
  5. Neary, J Peter, 1991. "Cost Asymmetries in International Subsidy Games: Should Governments Help Winners or Losers?," CEPR Discussion Papers 560, C.E.P.R. Discussion Papers.
  6. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
  7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
  8. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(3), pages 488-511, June.
  9. Maggi, Giovanni, 1999. "Strategic Trade Policy under Incomplete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 571-94, August.
  10. Goldberg, Pinelopi Koujianou, 1995. "Strategic Export Promotion in the Absence of Government Precommitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 407-26, May.
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Citations

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Cited by:
  1. Delia Ionascu & Kresimir Zigic, 2001. "Strategic Trade Policy and Mode of Competition: Symmetric versus Asymmetric Information," CERGE-EI Working Papers wp174, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  2. Ionascu, Delia & Zigic, Kresimir, 2001. "Free Trade versus Strategic Trade as a Choice Between Two 'Second-best' Policies: A Symmetric versus Asymmetric Information Analysis," CEPR Discussion Papers 2928, C.E.P.R. Discussion Papers.
  3. Dewit, Gerda & Leahy, Dermot, 2004. "Rivalry in uncertain export markets: commitment versus flexibility," Journal of International Economics, Elsevier, vol. 64(1), pages 195-209, October.
  4. Everaert, Greetje M.M., 2004. "The Political Economy of Restructuring and Subsidisation: An International Perspective," BOFIT Discussion Papers 12/2004, Bank of Finland, Institute for Economies in Transition.
  5. Gerda Dewit & Dermot Leahy, 2001. "Rivalry In Uncertain Export Markets: Commitment Versus Flexibility," Economics, Finance and Accounting Department Working Paper Series, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth n1050201, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  6. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
  7. Neary, J Peter, 1998. "Beat 'Em or Join 'Em?: Export Subsidies Versus International Research Joint Ventures in Oligopolistic Markets," CEPR Discussion Papers 1916, C.E.P.R. Discussion Papers.
  8. Dermot Leahy & J. Peter Neary, 2001. "Robust rules for industrial policy open economies," The Journal of International Trade & Economic Development, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(4), pages 393-409.
  9. Leahy, Dermot & Neary, J Peter, 2001. "Robust Rules for Industrial Policy in Open Economies," CEPR Discussion Papers 2731, C.E.P.R. Discussion Papers.
  10. Dewit, Gerda & Leahy, Dermot, 2006. "Investment timing under uncertainty in oligopoly: Symmetry or leadership?," Journal of Economics and Business, Elsevier, vol. 58(1), pages 1-19.
  11. Gerda Dewit & Dermot Leahy, 2002. "Time-To-Build Investment and Uncertainty in Oligopoly," Working Papers, School Of Economics, University College Dublin 200207, School Of Economics, University College Dublin.

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