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Economic geography with tariff competition

  • Mai, Chao-Cheng
  • Peng, Shin-Kun
  • Tabuchi, Takatoshi

A simple two-country model of economic geography is constructed in order to examine the effect of tariff competition on the spatial distribution of manufacturing activities as well as on welfare. We show that when the transport cost is small, tariff competition with firm migration leads to a core-periphery economy, where one of the two countries imposes no tariff in Nash equilibrium. We also show that when the transport cost is sufficiently large, both countries impose a positive tariff, which decreases the welfare of both countries.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 38 (2008)
Issue (Month): 5 (September)
Pages: 478-486

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Handle: RePEc:eee:regeco:v:38:y:2008:i:5:p:478-486
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  1. Bruce A. Blonigen, 2000. "Tariff-Jumping Antidumping Duties," NBER Working Papers 7776, National Bureau of Economic Research, Inc.
  2. Konishi, Hideo & Saggi, Kamal & Weber, Shlomo, 1999. "Endogenous trade policy under foreign direct investment," Journal of International Economics, Elsevier, vol. 49(2), pages 289-308, December.
  3. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
  4. Paul Krugman, 1991. "The move toward free trade zones," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 5-25.
  5. 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.
  6. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  7. Behrens, Kristian & Lamorgese, Andrea & Ottaviano, Gianmarco & Tabuchi, Takatoshi, 2004. "Testing the Home Market Effect in a Multi-Country World: The Theory," CEPR Discussion Papers 4468, C.E.P.R. Discussion Papers.
  8. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  9. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  10. Ottaviano, Gianmarco & Thisse, Jacques-François, 1998. "Agglomeration and Trade Revisited," CEPR Discussion Papers 1903, C.E.P.R. Discussion Papers.
  11. BEHRENS, Kristian & LAMORGESE, Andrea R. & OTTAVIANO, Gianmarco I.P. & TABUCHI, Takatoshi, 2005. "Testing the ‘home market effect’ in a multi-country world," CORE Discussion Papers 2005055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June.
  13. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
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