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Export Subsidies, Cost Differential And Product Quality

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  • Hong Hwang
  • Chao‐Cheng Mai
  • Hiroshi Ohta

Abstract

This paper presents a vertical product differentiation model to examine the relationship between optimal trade policies and product qualities for different export countries under Cournot quantity competition as well as Bertrand price competition. We can also use this quality model to explain why Japan as a high production‐cost country may have incentives to offer high subsidies. This is a case that cannot be explained by the strategic trade theory models à la Brander and Spencer (1985) or Eaton and Grossman (1986).

Suggested Citation

  • Hong Hwang & Chao‐Cheng Mai & Hiroshi Ohta, 2010. "Export Subsidies, Cost Differential And Product Quality," Pacific Economic Review, Wiley Blackwell, vol. 15(1), pages 32-41, February.
    • Handle: RePEc:bla:pacecr:v:15:y:2010:i:1:p:32-41
    DOI: 10.1111/j.1468-0106.2009.00487.x
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November.
    3. Zhou, Dongsheng & Spencer, Barbara J. & Vertinsky, Ilan, 2002. "Strategic trade policy with endogenous choice of quality and asymmetric costs," Journal of International Economics, Elsevier, vol. 56(1), pages 205-232, January.
    4. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    5. Levhari, David & Srinivasan, T N, 1969. "Durability of Consumption Goods: Competition Versus Monopoly," American Economic Review, American Economic Association, vol. 59(1), pages 102-107, March.
    6. Mai, Chao-cheng & Hwang, Hong, 1988. "Optimal export subsidies and marginal cost differentials," Economics Letters, Elsevier, vol. 27(3), pages 279-282.
    7. Barbara J. Spencer & James A. Brander, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 707-722.
    8. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    9. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
    10. David de Meza, 1986. "Export Subsidies and High Productivity: Cause or Effect?," Canadian Journal of Economics, Canadian Economics Association, vol. 19(2), pages 347-350, May.
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    Cited by:

    1. Hong Hwang & Chao-Cheng Mai & Ya-Po Yang, 2015. "Specific vs Ad Valorem Strategic Export Subsidies with Taxation Distortion," Review of Development Economics, Wiley Blackwell, vol. 19(4), pages 820-828, November.
    2. Yang, Wen & Liu, Yi-Cheng & Mai, Chao-Cheng, 2017. "How did Japanese exports evolve from 1995 to 2014? A spatial econometric perspective," Japan and the World Economy, Elsevier, vol. 41(C), pages 50-58.
    3. Wen Yang & Yi-Cheng Liu & Chao-Cheng Mai, 2017. "What Explains German Export Performances? Spatial Econometric Evidences: 1995 to 2014," International Business Research, Canadian Center of Science and Education, vol. 10(9), pages 17-30, September.
    4. Vijay Mohan & Bharat Hazari, 2012. "Tax Policy When Countries Compete for Third Market Exports," Pacific Economic Review, Wiley Blackwell, vol. 17(5), pages 708-728, December.

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