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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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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd11-191.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
    3. Head, Keith, 1994. "Infant industry protection in the steel rail industry," Journal of International Economics, Elsevier, vol. 37(3-4), pages 141-165, November.
    4. 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.
    5. 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.
    6. Melitz, Marc J., 2005. "When and how should infant industries be protected?," Journal of International Economics, Elsevier, vol. 66(1), pages 177-196, May.
    7. 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.
    8. 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.
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    More about this item

    Keywords

    dynamic externality; infant industry protection; numerical analysis; Vietnam;
    All these keywords.

    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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