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Can Indonesia Gain from Log Export Barriers?

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  • Arunanondchai, May

Abstract

We use a modelof sequentialduopoly to examine the effect of verticalownership structure on firms’ outputs and profit shares in the internationalmarket for raw and processed tropicaltimber products. The modelprovides insights that can be applied to the Indonesian logging and plywood industry; shedding light on the appropriate policy responses. We find that when industries are integrated, the government should subsidise both exports. Thus, despite log and plywood being strategic substitutes, log export barriers make Indonesia worse off. When industries are separated, however, plywood exports should be subsidised but the optimal trade policy on log exports depends on two effects. If the commitment failure effect (as in Brander and Spencer (1985)) dominates then log exports should be subsidised, however, if the negative cross-industry effect dominates then log exports should be taxed.

Suggested Citation

  • Arunanondchai, May, 2002. "Can Indonesia Gain from Log Export Barriers?," Economic Research Papers 269389, University of Warwick - Department of Economics.
  • Handle: RePEc:ags:uwarer:269389
    DOI: 10.22004/ag.econ.269389
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    References listed on IDEAS

    as
    1. Spencer, Barbara J. & Jones, Ronald W., 1992. "Trade and protection in vertically related markets," Journal of International Economics, Elsevier, vol. 32(1-2), pages 31-55, February.
    2. Greenhut, M L & Ohta, H, 1979. "Vertical Integration of Successive Oligopolists," American Economic Review, American Economic Association, vol. 69(1), pages 137-141, March.
    3. Gérard Gaudet & Ngo Van Long & Antoine Soubeyran, 1999. "Upstream-Downstream Specialization by Integrated Firms in a Partially Integrated Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(4), pages 321-335, June.
    4. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    5. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
    6. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    7. Abiru, Masahiro, 1988. "Vertical Integration, Variable Proportions and Successive Oligopolies," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 315-325, March.
    8. Barbara J. Spencer & Ronald W. Jones, 1991. "Vertical Foreclosure and International Trade Policy," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 153-170.
    9. Tracy Lewis & Robin Lindsey & Roger Ware, 1986. "Long-Term Bilateral Monopoly: The Case of an Exhaustible Resource," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 89-104, Spring.
    10. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
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