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Optimum Tariffs and Retaliation: How Country Numbers Matter

Author Info

Listed author(s):
  • Francis Bloch

    (GREQAM and Ecole Superieure de Mecanique de Marseille)

  • Ben Zissimos

    ()

    (Department of Economics, Vanderbilt University)

Abstract

This paper presents a North-South model of international trade in which (i) there is a relatively small number of countries in the North and (ii) the North is relatively abundant in capital while the South is relatively abundant in labor. Using new methods in monotone comparative statics, the effect of changes in country numbers on the outcome of a "tariff war" is studied. It is shown that terms-of-trade and welfare in the North are greater the larger the number of countries in the South and vice versa. The paper also studies the relationship between the number of countries in the world market and its performance in terms of efficiency. It is shown that, as the world economy is replicated, the equilibrium in a tariff war converges monotonically towards the competitive equilibrium of free trade.

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File URL: http://www.accessecon.com/pubs/VUECON/vu08-w02.pdf
File Function: First version, 2008
Download Restriction: no

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0802.

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Date of creation: Jan 2008
Handle: RePEc:van:wpaper:0802
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

Keywords: Comparative statics; efficiency; North-South; tariff war; terms of trade;

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Find related papers by JEL classification:
  • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
  • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
  • H2 - Public Economics - - Taxation, Subsidies, and Revenue
  • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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  1. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. "Estimating Trade Restrictiveness Indices," Economic Journal, Royal Economic Society, vol. 119(534), pages 172-199, 01.
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  3. Bown, Chad P. & Crowley, Meredith A., 2006. "Policy externalities: How US antidumping affects Japanese exports to the EU," European Journal of Political Economy, Elsevier, vol. 22(3), pages 696-714, September.
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  6. Edward Tower, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 623-630.
  7. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
  8. Otani, Yoshihiko, 1980. "Strategic Equilibrium of Tariffs and General Equilibrium," Econometrica, Econometric Society, vol. 48(3), pages 643-662, April.
  9. W. M. Gorman, 1958. "Tariffs, Retaliation, and the Elasticity of Demand for Imports," Review of Economic Studies, Oxford University Press, vol. 25(3), pages 133-162.
  10. James E. Anderson & J. Peter Neary, 2005. "Measuring the Restrictiveness of International Trade Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012200, July.
  11. Gros, Daniel, 1987. "A note on the optimal tariff, retaliation and the welfare loss from tariff wars in a framework with intra-industry trade," Journal of International Economics, Elsevier, vol. 23(3-4), pages 357-367, November.
  12. Bown, Chad P. & Crowley, Meredith A., 2007. "Trade deflection and trade depression," Journal of International Economics, Elsevier, vol. 72(1), pages 176-201, May.
  13. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
  14. Christian Broda & Nuno Limao & David E. Weinstein, 2008. "Optimal Tariffs and Market Power: The Evidence," American Economic Review, American Economic Association, vol. 98(5), pages 2032-2065, December.
  15. Corden, W.M., 1984. "The normative theory of international trade," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 2, pages 63-130 Elsevier.
  16. Amir, Rabah & Bloch, Francis, 2009. "Comparative statics in a simple class of strategic market games," Games and Economic Behavior, Elsevier, vol. 65(1), pages 7-24, January.
  17. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
  18. John Kennan & Raymond Riezman, 2013. "Do Big Countries Win Tariff Wars?," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 4, pages 45-51 World Scientific Publishing Co. Pte. Ltd..
  19. Davis, Donald R, 1997. "Critical Evidence on Comparative Advantage? North-North Trade in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1051-1060, October.
  20. Constantinos Syropoulos, 2002. "Optimum Tariffs and Retaliation Revisited: How Country Size Matters," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 707-727.
  21. Bond, Eric W. & Syropoulos, Constantinos, 1996. "The size of trading blocs Market power and world welfare effects," Journal of International Economics, Elsevier, vol. 40(3-4), pages 411-437, May.
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Cited by:

  1. Yoshitomo Ogawa, 2012. "The structure of Nash equilibrium tariffs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(1), pages 139-161, September.

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