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Tariff strategies and small open economies

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Author Info
Pascalis Raimondos-Møller (Copenhagen Business School)
Alan D. Woodland (University of Sidney)

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Abstract

This paper examines the issue of optimal tariffs for a small economy that trades with a large economy. We define `small' and `large' in the sense that the world prices are determined solely by the large country and, therefore, the small country faces exogenously given world prices. Within this framework it is shown that the small country has an incentive to behave as a Stackelberg leader by committing itself to a non-zero optimal tariff. Although the small country is unable to directly affect world prices, by pre-committing to a non-zero trade tax it induces a reduction of the large country's optimal trade tax, thereby indirectly improving its terms of trade and welfare.

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File URL: http://www.econ.ku.dk/CIE/Discussion%20Papers/1997/PdfFiles/9723.pdf
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Publisher Info
Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1997-23.

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Length: 22 pages
Date of creation: Dec 1997
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Publication status: Published in: Canadian Journal of Economics. February 2000; 33(1): 25-40
Handle: RePEc:kud:kuieci:1997-23

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Related research
Keywords: small economy; optimal tariffs; Stackelberg leader;

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F35 - International Economics - - International Finance - - - Foreign Aid

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. de Meza, David, 1979. "Commercial Policy Towards Multinational Monopolies-Reservations on Katrak," Oxford Economic Papers, Oxford University Press, vol. 31(2), pages 334-37, July. [Downloadable!] (restricted)
  2. Svedberg, Peter, 1979. "Optimal Tariff Policy on Imports from Multinationals," The Economic Record, The Economic Society of Australia, vol. 55(148), pages 64-67, March.
  3. Richardson, Martin, 1995. "On the Interpretation of the Kemp/Wan Theorem," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 696-703, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Journal of Industry, Competition and Trade, Springer, vol. 7(1), pages 31-52, March. [Downloadable!] (restricted)
  2. Gjermund Nese & Odd Rune Staume, 2005. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Gjermund Nese & Odd Straume, 2007. "Industry Concentration and Strategic Trade Policy in Successive Oligopoly," Experimental Economics, Springer, vol. 7(1), pages 31-52, March. [Downloadable!] (restricted)
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