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Economic Geography with Tariff Competition

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Author Info
Chao-cheng Mai (Department of Industrial Economics, Tamkang University and Academia Sinica)
Shin-Kun Peng (Academia Sinica and National Taiwan University)
Takatoshi Tabuchi (Faculty of Economics, University of Tokyo)

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Abstract

A simple two-country model of economic geography is constructed in order to examine the effect of tariff competition on the spatial distribution of manufacturing activities as well as on welfare. We show that when the transport cost is sufficiently small, tariff competition with firm migration leads to a core-periphery economy, where one of the two countries imposes no tariff in Nash equilibrium. We also show that when the transport cost is sufficiently large, tariff competition harms the welfare of the two countries, implying that each country is better off by mutually binding agreement of free trade.

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File URL: http://www.e.u-tokyo.ac.jp/cirje/research/dp/2006/2006cf435.pdf
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Publisher Info
Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-435.

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Length: 19pages
Date of creation: Sep 2006
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Handle: RePEc:tky:fseres:2006cf435

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  1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June. [Downloadable!] (restricted)
  3. Blonigen, Bruce A., 2002. "Tariff-jumping antidumping duties," Journal of International Economics, Elsevier, vol. 57(1), pages 31-49, June. [Downloadable!] (restricted)
  4. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February. [Downloadable!] (restricted)
  5. Behrens, Kristian & Lamorgese, Andrea & Ottaviano, Gianmarco Ireo Paolo & Tabuchi, Takatoshi, 2004. "Testing the Home Market Effect in a Multi-Country World: The Theory," CEPR Discussion Papers 4468, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
  7. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June. [Downloadable!] (restricted)
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  8. Konishi, Hideo & Saggi, Kamal & Weber, Shlomo, 1999. "Endogenous trade policy under foreign direct investment," Journal of International Economics, Elsevier, vol. 49(2), pages 289-308, December. [Downloadable!] (restricted)
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