The Timing of Trade Policy Implementation in a Third Market Model

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This paper examines how the difference in the timing of trade policy implementation affects the welfare of the exporting and importing countries, and world welfare, using a third market model. The paper shows that when the importing government (resp. the exporting governments) first move(s), the welfare of the importing country and the world is the highest (resp. lowest). Further, we compare the equilibrium results under free trade, the unilateral interventions, and bilateral interventions. When the exporting governments implement the subsidy policy strategically, the import tariff policy implemented importing government in advance of setting the subsidy can be justified from the viewpoint of the third country’s welfare and also world welfare.

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