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Optimum tariffs and retaliation: How country numbers matter

  • Zissimos, Ben

This paper identifies a new terms-of-trade externality that is exercised through tariff setting. A North-South model of international trade is introduced in which the number of countries in each region can be varied. As the number of countries in one region is increased, each government there competes more aggressively with the others in its region, by lowering its tariff, to attract imports from the other region. In doing so, all countries in a region exert a negative terms-of-trade externality on each other, collectively undermining their own terms of trade and welfare. This externality can increase efficiency if the numbers of countries in both regions are increased simultaneously.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022-1996(09)00050-6
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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 78 (2009)
Issue (Month): 2 (July)
Pages: 276-286

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Handle: RePEc:eee:inecon:v:78:y:2009:i:2:p:276-286
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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