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The Optimal Dynamic Infant Industry Protection in Joining a Free Trade Agreement: A Numerical Analysis of the Vietnamese Motorcycle Industry

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  • Tran Lam Anh Duong
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    Abstract

    This paper investigates the optimal dynamic paths of trade protection imposed on infant industries during the process of joining a free trade agreement. The framework is based on the dynamic learning-by-doing model developed in Melitz (2005), where industries are experiencing dynamic externalities. In this framework, restricted-time protection is introduced as a realistic approach to correspond to the conditions of actual agreements. According to the computational analysis, in some feasible cases of optimal tariff paths may not follow a downward trend, as conventional wisdom would suggest. The results of the numerical simulation applied to the Vietnamese motorcycle industry support these findings.

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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd11-191.pdf
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    Bibliographic Info

    Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd11-191.

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    Date of creation: May 2011
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    Handle: RePEc:hst:ghsdps:gd11-191

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    Keywords: dynamic externality; infant industry protection; numerical analysis; Vietnam;

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    1. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
    2. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
    3. Head, Keith, 1994. "Infant industry protection in the steel rail industry," Journal of International Economics, Elsevier, vol. 37(3-4), pages 141-165, November.
    4. Melitz, Marc J., 2005. "When and how should infant industries be protected?," Journal of International Economics, Elsevier, vol. 66(1), pages 177-196, May.
    5. Tybout, James R, 1992. "Linking Trade and Productivity: New Research Directions," World Bank Economic Review, World Bank Group, vol. 6(2), pages 189-211, May.
    6. Young, Alwyn, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 369-405, May.
    7. Houpt, Stefan, 2002. "Putting Spanish steel on the map: The location of Spanish integrated steel, 1880 1936," European Review of Economic History, Cambridge University Press, vol. 6(02), pages 193-220, August.
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