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Procompetitive Trade Policies

Author

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  • Moraga-Gonzalez, Jose Luis

    (Erasmus University Rotterdam)

  • Jean-Marie Viaene

Abstract

We study the procompetitive effects of trade policies against a foreign oligopoly in a model of vertical product differentiation. We show that a uniform tariff policy like the Most Favored Nation (MFN) clause is welfare superior to free trade because of a pure rent-extraction effect. A nonuniform tariff policy is, in addition, procompetitive and thus yields a higher level of social welfare. The first best policy typically consists of subsidizing production of low quality and levying a tariff on production of high quality. Regional Trade Agreements (RTAs) are examples of nonuniform tariff policies. We show that these arrangements yield higher welfare than free trade and, moreover, that a RTA with a low-quality producing country yields larger gains than a RTA with a high-quality producing country.

Suggested Citation

  • Moraga-Gonzalez, Jose Luis & Jean-Marie Viaene, 2002. "Procompetitive Trade Policies," Royal Economic Society Annual Conference 2002 141, Royal Economic Society.
    • Handle: RePEc:ecj:ac2002:141
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    Cited by:

    1. Moraga-Gonzalez, Jose Luis & Viaene, Jean-Marie, 2005. "Trade policy and quality leadership in transition economies," European Economic Review, Elsevier, vol. 49(2), pages 359-385, February.
    2. Hernán, Roberto & Kujal, Praveen, 2005. "Import tariffs, quality investment and welfare," UC3M Working papers. Economics we056116, Universidad Carlos III de Madrid. Departamento de Economía.

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