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Optimum Tariffs and Retaliation: How Country Numbers Matter

Author Info

  • 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
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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
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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. 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, December.
  2. 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 1051-60, October.
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  6. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
  7. Bagwell, Kyle & Staiger, Robert W., 1997. "Multilateral tariff cooperation during the formation of customs unions," Journal of International Economics, Elsevier, vol. 42(1-2), pages 91-123, February.
  8. 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.
  9. Kyle Bagwell & Robert W. Staiger, 1997. "An Economic Theory of GATT," NBER Working Papers 6049, National Bureau of Economic Research, Inc.
  10. Edward Tower, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 623-630.
  11. 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 2032-65, December.
  12. Kee, Hiau Looi & Nicita, Alessandro & Olarreaga, Marcelo, 2006. "Estimating trade restrictiveness indices," Policy Research Working Paper Series 3840, The World Bank.
  13. 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..
  14. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  15. Rabah Amir & Val E. Lambson, 1998. "On the Effects of Entry in Cournot Markets," CIE Discussion Papers 1998-06, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  16. Chad P. Bown & Meredith A. Crowley, 2003. "Trade deflection and trade depression," Working Paper Series WP-03-26, Federal Reserve Bank of Chicago.
  17. 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.
  18. 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.
  19. 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.
  20. 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.
  21. Otani, Yoshihiko, 1980. "Strategic Equilibrium of Tariffs and General Equilibrium," Econometrica, Econometric Society, vol. 48(3), pages 643-62, April.
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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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