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Optimum Tariffs and Retaliation: How Country Numbers Matter

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Author Info
Francis Bloch (GREQAM and Ecole Superieure de Mecanique de Marseille)
Ben Zissimos () (Department of Economics, Vanderbilt University)

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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.vanderbilt.edu/Econ/wparchive/workpaper/vu08-w02.pdf
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File Function: First version, 2008
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series 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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Related research
Keywords: Comparative statics; efficiency; North-South; tariff war; terms of trade;

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
H2 - Public Economics - - Taxation, Subsidies, and Revenue
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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  1. Bagwell, Kyle & Staiger, Robert W., 1997. "Multilateral tariff cooperation during the formation of customs unions," Journal of International Economics, Elsevier, vol. 42(1-2), pages 91-123, February. [Downloadable!] (restricted)
    Other versions:
  2. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341.
  3. Rabah Amir, 2000. "On the Effects of Entry in Cournot Markets," Econometric Society World Congress 2000 Contributed Papers 1475, Econometric Society. [Downloadable!]
    Other versions:
  4. Amir, Rabah & Bloch, Francis, 2009. "Comparative statics in a simple class of strategic market games," Games and Economic Behavior, Elsevier, vol. 65(1), pages 7-24, January. [Downloadable!] (restricted)
  5. Bown, Chad P. & Crowley, Meredith A., 2006. "Policy externalities: How US antidumping affects Japanese exports to the EU," European Journal of Political Economy, Elsevier, vol. 22(3), pages 696-714, September. [Downloadable!] (restricted)
    Other versions:
  6. Tower, Edward, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Blackwell Publishing, vol. 42(4), pages 623-30, October. [Downloadable!] (restricted)
  7. Pinelopi Koujianou Goldberg & Giovanni Maggi, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December. [Downloadable!] (restricted)
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  8. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204.
  9. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. "Estimating Trade Restrictiveness Indices," Economic Journal, Royal Economic Society, vol. 119(534), pages 172-199, 01. [Downloadable!] (restricted)
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  10. 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. [Downloadable!] (restricted)
  11. Otani, Yoshihiko, 1980. "Strategic Equilibrium of Tariffs and General Equilibrium," Econometrica, Econometric Society, vol. 48(3), pages 643-62, April. [Downloadable!] (restricted)
  12. Kyle Bagwell & Robert W. Staiger, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March. [Downloadable!] (restricted)
    Other versions:
  13. Syropoulos, Constantinos, 2002. "Optimum Tariffs and Retaliation Revisited: How Country Size Matters," Review of Economic Studies, Blackwell Publishing, vol. 69(3), pages 707-27, July.
  14. Robert W. Staiger, 1994. "International Rules and Institutions for Trade Policy," NBER Working Papers 4962, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Gros, Daniel, 1987. "A note on the optimal tariff, retaliation and the welfare loss from tariff wars in a framework with intra-industry trade," Journal of International Economics, Elsevier, vol. 23(3-4), pages 357-367, November. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
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