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A Geographic Approach to International Economics: 'Strategic Trade Policy'?



This paper introduces a trade cost asymmetry into the Core-periphery model to investigate the location effects of protection. Trade costs arise from the active choice of governments. In the case of a country that can decide the level of barriers to imports without retaliation by the other country, unilateral protection is shown to attract firms and to increase the welfare of residents. Since all countries face a rational incentive to unilateral protection, noncooperative behaviour may lead to an inefficient equilibrium with too much protection.

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  • G. Ottaviano, 1995. "A Geographic Approach to International Economics: 'Strategic Trade Policy'?," Working Papers 216, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:216

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    1. Razin, Assaf & Sadka, Efraim, 1993. "International migration and international trade," Handbook of Population and Family Economics,in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 15, pages 851-887 Elsevier.
    2. Kiminori Matsuyama, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 617-650.
    3. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier.
    4. Baldwin, Richard & Venables, Anthony J, 1994. "International Migration, Capital Mobility and Transitional Dynamics," Economica, London School of Economics and Political Science, vol. 61(243), pages 285-300, August.
    5. Carlos M. Asilis & Luis Rivera-Batiz, 1994. "Geography, Trade Patterns, and Economic Policy," IMF Working Papers 94/16, International Monetary Fund.
    6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    7. Paul Krugman, 1992. "A Dynamic Spatial Model," NBER Working Papers 4219, National Bureau of Economic Research, Inc.
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