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Optimum Tariffs and Retaliation: How Country Numbers Matter

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  • Francis Bloch

    (GREQAM and Ecole Superieure de Mecanique de Marseille)

  • Ben Zissimos

    ()
    (Department of Economics, Vanderbilt University)

Abstract

This paper presents a North-South model of international trade in which (i) there is a relatively small number of countries in the North and (ii) the North is relatively abundant in capital while the South is relatively abundant in labor. Using new methods in monotone comparative statics, the effect of changes in country numbers on the outcome of a "tariff war" is studied. It is shown that terms-of-trade and welfare in the North are greater the larger the number of countries in the South and vice versa. The paper also studies the relationship between the number of countries in the world market and its performance in terms of efficiency. It is shown that, as the world economy is replicated, the equilibrium in a tariff war converges monotonically towards the competitive equilibrium of free trade.

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File URL: http://www.accessecon.com/pubs/VUECON/vu08-w02.pdf
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0802.

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Date of creation: Jan 2008
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Handle: RePEc:van:wpaper:0802

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Comparative statics; efficiency; North-South; tariff war; terms of trade;

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References

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  1. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
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  3. Christian Broda & N. Limao & D. Weinstein, 2006. "Optimal Tariffs: The Evidence," 2006 Meeting Papers 381, Society for Economic Dynamics.
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  10. Syropoulos, Constantinos, 2002. "Optimum Tariffs and Retaliation Revisited: How Country Size Matters," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 707-27, July.
  11. Zissimos, Ben, 2009. "Optimum tariffs and retaliation: How country numbers matter," Journal of International Economics, Elsevier, vol. 78(2), pages 276-286, July.
  12. J Anderson & J.P. Neary, 1994. "Measuring the Restrictiveness of Trade Policy," CEP Discussion Papers dp0186, Centre for Economic Performance, LSE.
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  20. Hamilton, Bob & Whalley, John, 1983. "Optimal tariff calculations in alternative trade models and some possible implications for current world trading arrangements," Journal of International Economics, Elsevier, vol. 15(3-4), pages 323-348, November.
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  22. Kennan, John & Riezman, Raymond, 1988. "Do Big Countries Win Tariff Wars?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 81-85, February.
  23. Chad P. Bown & Meredith Crowley, 2004. "Policy externalities: how U.S. antidumping affects Japanese exports to the EU," Working Paper Series WP-04-12, Federal Reserve Bank of Chicago.
  24. Bown, Chad P. & Crowley, Meredith A., 2007. "Trade deflection and trade depression," Journal of International Economics, Elsevier, vol. 72(1), pages 176-201, May.
  25. Christian Broda & Nuno Limao & David E. Weinstein, 2008. "Optimal Tariffs and Market Power: The Evidence," American Economic Review, American Economic Association, vol. 98(5), pages 2032-65, December.
  26. Tower, Edward, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Wiley Blackwell, vol. 42(4), pages 623-30, October.
  27. Corden, W.M., 1984. "The normative theory of international trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 2, pages 63-130 Elsevier.
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Cited by:
  1. Zissimos, Ben, 2009. "Optimum tariffs and retaliation: How country numbers matter," Journal of International Economics, Elsevier, vol. 78(2), pages 276-286, July.
  2. Yoshitomo Ogawa, 2012. "The structure of Nash equilibrium tariffs," Economic Theory, Springer, vol. 51(1), pages 139-161, September.

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