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Free Trade vs Strategic Trade: A Peek into Pandora's Box

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Listed:
  • Maggi, G.
  • Grossman, G.

Abstract

We investigate whether a welfare-maximising government ought to pursue a program of strategic trade intervention or instead commit itself to free trade when, in the former case, domestic firms will have an opportunity to manipulate the government's choice of the level of intervention. Domestic firms may overinvest in physical and knowledge capital in a regime of strategic intervention in order to influence the government's choice of subsidy.

Suggested Citation

  • Maggi, G. & Grossman, G., 1997. "Free Trade vs Strategic Trade: A Peek into Pandora's Box," Papers 190, Princeton, Woodrow Wilson School - Public and International Affairs.
  • Handle: RePEc:fth:priwpu:190
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    References listed on IDEAS

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    1. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "The Value of Trade Agreements in the Presence of Political Pressures," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 574-601, June.
    2. Barbara J. Spencer & James A. Brander, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 707-722.
    3. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November.
    4. Maggi, Giovanni, 1999. "Strategic Trade Policy under Incomplete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 571-594, August.
    5. 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.
    6. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May.
    7. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    8. Schulman, Craig T, 1997. "Free Entry, Quasi-free Trade, and Strategic Export Policy," Review of International Economics, Wiley Blackwell, vol. 5(1), pages 83-100, February.
    9. Goldberg, Pinelopi Koujianou, 1995. "Strategic Export Promotion in the Absence of Government Precommitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 407-426, May.
    10. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Citations

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    Cited by:

    1. Dewit, Gerda & Leahy, Dermot, 2004. "Rivalry in uncertain export markets: commitment versus flexibility," Journal of International Economics, Elsevier, vol. 64(1), pages 195-209, October.
    2. Delia Ionascu & Kresimir Zigic, 2001. "Strategic Trade Policy and Mode of Competition: Symmetric versus Asymmetric Information," CERGE-EI Working Papers wp174, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    3. Leahy, Dermot & Neary, J Peter, 2001. "Robust Rules for Industrial Policy in Open Economies," CEPR Discussion Papers 2731, C.E.P.R. Discussion Papers.
    4. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
    5. Dewit, Gerda & Leahy, Dermot, 2006. "Investment timing under uncertainty in oligopoly: Symmetry or leadership?," Journal of Economics and Business, Elsevier, vol. 58(1), pages 1-19.
    6. Dermot Leahy & J. Peter Neary, 2001. "Robust rules for industrial policy open economies," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(4), pages 393-409.
    7. Kresimir Zigic, 2011. "Strategic Interactions in Markets with Innovative Activity: The Cases of Strategic Trade Policy and Market Leadership," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b06, November.
    8. Neary, J Peter & O'Sullivan, Paul, 1999. " Beat 'Em or Join 'Em? Export Subsidies versus International Research Joint Ventures in Oligopolistic Markets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 577-596, December.
    9. Delia Ionascu & Kresimir zigic, 2005. "Free trade versus strategic trade as a choice between two 'second best' policies: A symmetric versus asymmetric information analysis," International Economic Journal, Taylor & Francis Journals, vol. 19(3), pages 417-446.
    10. Gerda Dewit & Dermot Leahy, 2002. "Time-to-build investment and uncertainty in oligopoly," Working Papers 200207, School of Economics, University College Dublin.

    More about this item

    Keywords

    EXPORTS ; TRADE POLICY;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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