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National Product Preferences and International Trade

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Author Info

  • Reed, Geoffrey

    (CREDIT)

  • Torstensson, Johan

    (Department of Economics, Lund University and FIEF)

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    Abstract

    We show that when two countries are the same size then the country with stronger preferences in favour of domestic varieties of differentiated goods produced under increasing returns (IRS) will be the net exporter of that good. It is also shown that strong preferences for domestic varieties reduce welfare in the other country and that unilateral trade barriers will necessarily improve welfare there. Moreover, the country with the weaker preferences for domestic varieties may benefit from trade restrictions even when this leads to a trade war. We also show that such preferences may explain low import penetration in IRS-goods. Finally, we discuss the policy implications of such preferences. It is argued that this model can be used to for example capture aspects of US-Japan trade in high-tech goods.

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    File URL: http://swopec.hhs.se/fiefwp/papers/WP145.pdf
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    Bibliographic Info

    Paper provided by Trade Union Institute for Economic Research in its series Working Paper Series with number 145.

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    Length: 22 pages
    Date of creation: 21 Aug 1997
    Date of revision:
    Handle: RePEc:hhs:fiefwp:0145

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    Keywords: national preferences; trade war; Japan;

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