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Strategic Trade Policy and Exchange Rate Uncertainty

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  • Fernando MESA PARRA

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Abstract

This paper examines the systematic e¤ect of the exchange rate volatility, when a local government has to evaluate linear and quadratic strategic trade policies. The exercise is realised for both Cournot and Bertrand markets fashions. In the Cournot market setting, when the domestic government o¤ers subsidies to local …rms, the international rent shifts toward domestic …rms. In the Bertrand market setting, when the domestic government imposes export taxes on local …rms, the trade policy improves …rm’s pro…ts and obviously hurts consumer surplus. The model proofs that the linear or quadratic scheme have the same e¤ect on the countries’ social welfare, and the volatility of the domestic exchange rate leads the governments to reduce export subsidies or to cut export taxes, according to the strategic variable chosen by …rms.

Suggested Citation

  • Fernando MESA PARRA, 2001. "Strategic Trade Policy and Exchange Rate Uncertainty," ARCHIVOS DE ECONOMÍA 003527, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
  • Handle: RePEc:col:000118:003527
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    References listed on IDEAS

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    1. Javier A. Birchenall, 2007. "Income distribution and macroeconomics in Colombia," Journal of Income Distribution, Journal of Income Distribution, vol. 16(2), pages 6-24, June.
    2. Ortega, Juan Ricardo & Piraquive, Gabriel Armando & Hernandez, Gustavo Adolfo & Soto, Carolina & Prada, Sergio & Ramirez, Juan Mauricio, 2000. "Incidencia fiscal de los incentivos tributarios
      [Fiscal Incidence of tax incentives]
      ," MPRA Paper 14016, University Library of Munich, Germany.
    3. Castro Carlos Alberto, 2001. "Eficiencia-X en el sector bancario colombiano," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, September.
    4. Jagdish Bhagwati & Arvind Panagariya & T. N. Srinivasan, 1998. "Lectures on International Trade, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522470, March.
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    Cited by:

    1. Diego F. Angel-Urdinola & Quentin Wodon, 2004. "The Impact on Inequality of Raising the Minimum Wage: Gap-narrowing and Reranking Effects," LABOUR, CEIS, vol. 18(2), pages 317-327, June.
    2. Thomas F. RUTHERFORD & Miles K. LIGHT & Gustavo Adolfo HERNANDEZ, 2002. "A dynamic general equilibrium model for tax policy analysis in Colombia," ARCHIVOS DE ECONOMÍA 001910, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    3. Jaime Andrés ESTRADA, 2002. "Optimal enforcement: Finding the right balance," ARCHIVOS DE ECONOMÍA 003302, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    4. Enrique PINZON GARCIA & Oscar M. VALENCIA ARANA, 2006. "The Determinants of Colombian Firm´s Debt-Asset Ratio (1997-2003)," ARCHIVOS DE ECONOMÍA 003582, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    5. Maria Otilia Orozco, 2005. "Colombia's Higher Education Quality Control System and Potential for Further Development," ARCHIVOS DE ECONOMÍA 002139, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    6. Mauricio SANTAMARÍA SALAMANCA, 2001. "External Trade, Skill, Technology and the recent increase of income inequality in Colombia," ARCHIVOS DE ECONOMÍA 002705, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    7. José Daniel REYES PEÑA, 2003. "The cost of disinflation in Colombia: -A sacrifice Ratio Approach-," ARCHIVOS DE ECONOMÍA 003579, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    8. Diego F. ANGEL URDINOLA & Quentin WODON, 2003. "Relative labor supply and the gender wage Gap: Evidence for Colombia and the United States," ARCHIVOS DE ECONOMÍA 003452, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    9. Paula ACOSTA MARQUEZ, 2002. "Does corporate governance matter for developing countries? An overview of the Mexican case," ARCHIVOS DE ECONOMÍA 002380, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    10. Carlos Alberto CASTRO IRAGORRI, 2003. "Yet another lagging, coincident and leading index for the Colombian economy," ARCHIVOS DE ECONOMÍA 003785, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    11. Diego F. ANGEL-URDINOLA, 2004. "A Minimum Wage Increase Can Have an Adverse Distributional Impact:The case of Colombia," ARCHIVOS DE ECONOMÍA 001922, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    12. Allan DRAZEN & Marcela ESLAVA, 2003. "The political business cycle in Colombia on the National and Regional level," ARCHIVOS DE ECONOMÍA 003616, DEPARTAMENTO NACIONAL DE PLANEACIÓN.

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    Keywords

    Trade;

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