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Country Size and Strategic Trade Policy: A Model of a Dominant Country Facing a Competitive Fringe

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  • Jing Fang

    (School of Economics, Huazhong University of Science and Technology)

Abstract

This paper develops a theory for why a large country might be special when it comes to pursuing strategic trade policy. Traditional theory holds that, a large country should hold back its exports to improve its terms of trade. However, if the learning-by-doing effect exists, then a large country has an incentive to subsidize exports. In this paper, I present a formal industrial organization (IO) model to capture this story. I embed this IO structure into a trade model with three goods. I also conduct some counter-factual analysis and welfare analysis about various trade policies of the importer countries.

Suggested Citation

  • Jing Fang, 2018. "Country Size and Strategic Trade Policy: A Model of a Dominant Country Facing a Competitive Fringe," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 279-300, May.
    • Handle: RePEc:cuf:journl:y:2018:v:19:i:1:fang
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    References listed on IDEAS

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    More about this item

    Keywords

    Country size; Strategic trade policy; Dominant country; Competitive fringe;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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