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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)

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
File Function: First version, 2008
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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

Related research

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

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References

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  1. 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.
  2. 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.
  3. Kyle Bagwell & Robert W. Staiger, 1997. "An Economic Theory of GATT," NBER Working Papers 6049, National Bureau of Economic Research, Inc.
  4. Christian Broda & Nuno Limão & David Weinstein, 2006. "Optimal Tariffs: The Evidence," NBER Working Papers 12033, National Bureau of Economic Research, Inc.
  5. Arnaud Costinot, 2009. "An Elementary Theory of Comparative Advantage," NBER Working Papers 14645, National Bureau of Economic Research, Inc.
  6. Rabah Amir, 2000. "On the Effects of Entry in Cournot Markets," Econometric Society World Congress 2000 Contributed Papers 1475, Econometric Society.
  7. Ben Zissimos, 2009. "Optimum Tariffs and Retaliation: How Country Numbers Matter," Vanderbilt University Department of Economics Working Papers 0904, Vanderbilt University Department of Economics.
  8. 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.
  9. Kyle Bagwell & Robert W. Staiger, 1993. "Multilateral Tariff Cooperation during the Formation of Customs Unions," NBER Working Papers 4543, National Bureau of Economic Research, Inc.
  10. Chad Bown & Meredith Crowley, 2003. "Trade deflection and trade depression," Working Paper Series WP-03-26, Federal Reserve Bank of Chicago.
  11. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  12. 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.
  13. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204, January.
  14. Otani, Yoshihiko, 1980. "Strategic Equilibrium of Tariffs and General Equilibrium," Econometrica, Econometric Society, vol. 48(3), pages 643-62, April.
  15. Bond, Eric W. & Syropoulos, Constantinos, 1996. "The size of trading blocs Market power and world welfare effects," Journal of International Economics, Elsevier, vol. 40(3-4), pages 411-437, May.
  16. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
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  18. 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.
  19. 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.
  20. J Anderson & J.P. Neary, 1994. "Measuring the Restrictiveness of Trade Policy," CEP Discussion Papers dp0186, Centre for Economic Performance, LSE.
  21. 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.
  22. Tower, Edward, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Wiley Blackwell, vol. 42(4), pages 623-30, October.
  23. Anderson, James E & Neary, J Peter, 1992. "Trade Reform with Quotas, Partial Rent Retention, and Tariffs," Econometrica, Econometric Society, vol. 60(1), pages 57-76, January.
  24. Pinelopi Koujianou Goldbe & Giovanni Maggi, 1997. "Protection for Sale: An Empirical Investigation," NBER Working Papers 5942, National Bureau of Economic Research, Inc.
  25. 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.
  26. James E. Anderson & J. Peter Neary, 2005. "Measuring the Restrictiveness of International Trade Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012200, January.
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Cited by:
  1. Yoshitomo Ogawa, 2012. "The structure of Nash equilibrium tariffs," Economic Theory, Springer, vol. 51(1), pages 139-161, September.
  2. Francis Bloch & Ben Zissimos, 2008. "Optimum Tariffs and Retaliation: How Country Numbers Matter," Vanderbilt University Department of Economics Working Papers 0802, Vanderbilt University Department of Economics.

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