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Strategic trade policy in the presence of reputation spillovers

Author

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  • Jayoti Das
  • Stephen DeLoach

Abstract

With the emergence of North-South intra-industry trade in products where consumers value quality, exporting countries potentially face significant barriers to entry. Due to the existence of asymmetric information about new products in a foreign market, the producer's reputation becomes an important factor in determining whether consumers choose to make a purchase. The purpose of this paper is to add learning externalities across multiple products to a model of endogenous firm entry and quality in order to examine the implications for commercial intervention. Building on the work of Mayer (1984) and Grossman and Horn (1988), we introduce learning across multiple products in the presence of incomplete information. If the reputation of the initial entrants from a country is poor, it raises the informational barriers to entry. Consequently, strategic trade policy depends on both the quality choice of firms entering the market for exports as well as the degree of product interrelatedness. In the presence of high and lowquality producers, across-the-board subsidization hinders rather than promotes exports in developing countries.

Suggested Citation

  • Jayoti Das & Stephen DeLoach, 2003. "Strategic trade policy in the presence of reputation spillovers," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(2), pages 101-116.
  • Handle: RePEc:taf:jitecd:v:12:y:2003:i:2:p:101-116
    DOI: 10.1080/0963819032000084340
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    Cited by:

    1. Hübler, Michael & Pothen, Frank, 2017. "Trade-induced productivity gains reduce incentives to impose strategic tariffs," Economic Modelling, Elsevier, vol. 61(C), pages 420-431.
    2. Stephen DeLoach & Jayoti Das, 2008. "Resolving the paradox of social standards and export competitiveness," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(4), pages 467-483.

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