A Technical Note on Trade Policy and the Number of Firms in the Third-Country Market : Reconsideration of Ohkawa, Okamura, and Tawada(2002)

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  • Technical Note on Trade Policy and the Number of Firms in the Third Country Market Reconsideration of Ohkawa Okamura and Tawada 2002

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In this technical paper, the analysis of Ohkawa, Okamura, and Tawada (2002) is reconsidered. The paper examines the relationship between trade policy and the number of firms in the third-country model, with some additional investigations that are not dealt with in their seminal paper. First, the exogenous simultaneous-move game of the decision on trade policy by the exporting countries is discussed, before analyzing the endogenous timing of trade policy. The calculating results on strategic trade policy are presented and trade intervention is compared with free trade. It is shown that when the difference in the number of firms in two exporting countries is sufficiently large, the stability of the equilibrium is not satisfied. Second, the endogenous timing is analyzed and some additional results are presented. The endogenous sequential decision on trade policy is compared with the simultaneous one. Finally, the restricted case in which the export tariff cannot be imposed is analyzed. This paper argues that the prohibition of the export tariff improves world welfare.

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