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The Optimal Dynamic Infant Industry Protection in Joining a Free Trade Agreement: A Numerical Analysis of the Vietnamese Motorcycle Industry

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  • Tran Lam Anh Duong

Abstract

This paper investigates the optimal dynamic paths of trade protection imposed on infant industries during the process of joining a free trade agreement. The framework is based on the dynamic learning-by-doing model developed in Melitz (2005), where industries are experiencing dynamic externalities. In this framework, restricted-time protection is introduced as a realistic approach to correspond to the conditions of actual agreements. According to the computational analysis, in some feasible cases of optimal tariff paths may not follow a downward trend, as conventional wisdom would suggest. The results of the numerical simulation applied to the Vietnamese motorcycle industry support these findings.

Suggested Citation

  • Tran Lam Anh Duong, 2011. "The Optimal Dynamic Infant Industry Protection in Joining a Free Trade Agreement: A Numerical Analysis of the Vietnamese Motorcycle Industry," Global COE Hi-Stat Discussion Paper Series gd11-191, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:ghsdps:gd11-191
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    References listed on IDEAS

    as
    1. Head, Keith, 1994. "Infant industry protection in the steel rail industry," Journal of International Economics, Elsevier, vol. 37(3-4), pages 141-165, November.
    2. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 369-405.
    3. Tybout, James R, 1992. "Linking Trade and Productivity: New Research Directions," The World Bank Economic Review, World Bank, vol. 6(2), pages 189-211, May.
    4. Bardhan, Pranab K, 1971. "On Optimum Subsidy to a Learning Industry: An Aspect of the Theory of Infant-Industry Protection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 12(1), pages 54-70, February.
    5. Melitz, Marc J., 2005. "When and how should infant industries be protected?," Journal of International Economics, Elsevier, vol. 66(1), pages 177-196, May.
    6. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
    7. Houpt, Stefan, 2002. "Putting Spanish steel on the map: The location of Spanish integrated steel, 1880–1936," European Review of Economic History, Cambridge University Press, vol. 6(2), pages 193-220, August.
    8. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
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    Keywords

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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