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Wasteful trade barriers in oligopoly

Author

Listed:
  • Keita Kamei
  • Kentaro Inomata

Abstract

Non-Tariff Barriers (NTBs) are known to exist in various forms. In this study, we investigate the role of Red-Tape Barriers (RTBs), a type of NTBs resulting from wasteful bureaucratic procedures, in a bilateral trade model under international oligopolistic competition. We demonstrate that, under relatively weak conditions, RTBs can arise endogenously. Furthermore, we reveal that RTBs can exhibit reactions opposite to tariffs. Specifically, we show that an increase in tariffs can lead to a significant decrease in RTBs, causing total trade costs to decline, which we call ‘backlash’. Additionally, when the backlash occurs, an increase in tariffs can improve consumer surplus, government revenue and expenditure, and social surplus. This study implies that tariff elimination, with the presence of RTBs, may hinder trade liberalization and reduce social surplus, emphasizing the need to carefully consider RTBs’ effects in trade policy, especially for oligopolistic industries.

Suggested Citation

  • Keita Kamei & Kentaro Inomata, 2024. "Wasteful trade barriers in oligopoly," Applied Economics Letters, Taylor & Francis Journals, vol. 31(18), pages 1856-1861, October.
    • Handle: RePEc:taf:apeclt:v:31:y:2024:i:18:p:1856-1861
    DOI: 10.1080/13504851.2023.2208332
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    References listed on IDEAS

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    1. Giovanni Maggi & Monika Mrázová & J. Peter Neary, 2022. "Choked By Red Tape? The Political Economy Of Wasteful Trade Barriers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(1), pages 161-188, February.
    2. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-1187, December.
    3. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F19 - International Economics - - Trade - - - Other

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