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Bilateralism Is Good: Trade Blocs and Strategic Export Subsidies

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  • Collie, David R

Abstract

This paper considers the effect of exogenous trade bloc enlargement in a multicountry version of the Brander-Spencer export subsidy game. In the single-shot game, it is shown that trade bloc enlargement leads to a reduction in the Nash equilibrium export subsidies and thereby increases the welfare of the exporting countries. Although the welfare of the importing countries decreases, world welfare may increase if the export subsidies are financed by distortionary taxation. When the export subsidy game is infinitely repeated, it is shown that trade bloc enlargement reduces the critical discount factor making it easier to sustain free trade. Copyright 1997 by Royal Economic Society.

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  • Collie, David R, 1997. "Bilateralism Is Good: Trade Blocs and Strategic Export Subsidies," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 504-520, October.
  • Handle: RePEc:oup:oxecpp:v:49:y:1997:i:4:p:504-20
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    Cited by:

    1. Kyle Bagwell & Robert W. Staiger, 2001. "Strategic Trade, Competitive Industries and Agricultural Trade Disputes," Economics and Politics, Wiley Blackwell, vol. 13(2), pages 113-128, July.
    2. Yochanan Shachmurove & Uriel Spiegel, 2004. "Size Does Matter: International Trade and Population Size," PIER Working Paper Archive 04-035, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    3. David Collie, 2000. "A Rationale for the WTO Prohibition of Export Subsidies: Strategic Export Subsidies and World Welfare," Open Economies Review, Springer, vol. 11(3), pages 229-245, July.
    4. Winters, L. Alan, 1996. "Regionalism versus Multilateralism," CEPR Discussion Papers 1525, C.E.P.R. Discussion Papers.
    5. Conconi, Paola, 2000. "Trade Bloc Formation Under Imperfect Competition," Economic Research Papers 269342, University of Warwick - Department of Economics.
    6. Baldwin, Richard, 2008. "Big-Think Regionalism: a Critical Survey," CEPR Discussion Papers 6874, C.E.P.R. Discussion Papers.
    7. David Collie, 2002. "Prohibiting State Aid in an Integrated Market: Cournot and Bertrand Oligopolies with Differentiated Products," Journal of Industry, Competition and Trade, Springer, vol. 2(3), pages 215-231, September.
    8. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
    9. Collie, David R., 2000. "State aid in the European Union: The prohibition of subsidies in an integrated market," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 867-884, August.
    10. Miller, Andrew D. & Langley, Suchada V. & Chambers, William, 2003. "Current Issues Affecting Trade And Trade Policy: An Annotated Literature Review," Working Papers 14606, International Agricultural Trade Research Consortium.
    11. Mario Marazzi, 2002. "On the fragility of gains from trade under continuously differentiated bertrand competition," International Finance Discussion Papers 735, Board of Governors of the Federal Reserve System (U.S.).

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