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Protection and international sourcing

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  • Ornelas, Emanuel
  • Turner, John L.

Abstract

We study the impact of import protection on relationship-specific investments, organizational choice and welfare. We show that a tariff on intermediate inputs can improve social welfare through mitigating hold-up problems. It does so if it discriminates in favor of the investing party, thereby improving its bargaining position. On the other hand, a tariff can prompt inefficient organizational choices if it discriminates in favor of less productive firms or if integration costs are low. Protection distorts organizational choices because tariff revenue, which is external to the firms, drives a wedge between the private and social gains to offshoring and integration.

Suggested Citation

  • Ornelas, Emanuel & Turner, John L., 2008. "Protection and international sourcing," LSE Research Online Documents on Economics 28511, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:28511
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    References listed on IDEAS

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    Cited by:

    1. Pol Antràs & Robert W. Staiger, 2012. "Offshoring and the Role of Trade Agreements," American Economic Review, American Economic Association, vol. 102(7), pages 3140-3183, December.
    2. Maya Cohen-Meidan, 2009. "Vertical Integration and Trade Protection: The Case of Antidumping Duties," Discussion Papers 08-034, Stanford Institute for Economic Policy Research.
    3. Conconi, Paola & Legros, Patrick & Newman, Andrew F., 2012. "Trade liberalization and organizational change," Journal of International Economics, Elsevier, vol. 86(2), pages 197-208.
    4. Díez, Federico J., 2014. "The asymmetric effects of tariffs on intra-firm trade and offshoring decisions," Journal of International Economics, Elsevier, vol. 93(1), pages 76-91.
    5. Ara, Tomohiro & Ghosh, Arghya, 2016. "Tariffs, vertical specialization and oligopoly," European Economic Review, Elsevier, vol. 82(C), pages 1-23.
    6. Ana Fernandes & Heiwai Tang, 2010. "The Determinants of Vertical Integration in Export Processing: Theory and Evidence from China," CEP Discussion Papers dp0980, Centre for Economic Performance, LSE.
    7. Fernandes, Ana P. & Tang, Heiwai, 2012. "Determinants of vertical integration in export processing: Theory and evidence from China," Journal of Development Economics, Elsevier, vol. 99(2), pages 396-414.
    8. Friberg, R & Tinn, K, 2012. "Holdup and Comparative Advantage," Working Papers 12193, Imperial College, London, Imperial College Business School.

    More about this item

    Keywords

    International trade; tariffs; hold-up problem; sourcing; organizational form;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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