A note on the optimal tariff, retaliation and the welfare loss from tariff wars in a framework with intra-industry trade

Gros, Daniël

doi:10.1016/0022-1996(87)90061-4

Cited by 177 publications

(184 citation statements)

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“…The literature distinguishes between two general motives for commercial policy: to protect the interests of special lobbying groups (owners of specific assets, trade unions), see Grossman and Helpman (1994), or to simply maximize national welfare. Following Gros (1987) and the ensuing literature, in the present paper, we choose the second option and characterize the ad valorem tariff that maximizes Home's welfare. Maggi and Goldberg (1999) find that the weight of welfare in the government's objective function is many times more important than the weight of special interests, so that our approach seems sensible.…”

Section: They Do Not Study How This Effect Interacts With the Terms-omentioning

confidence: 99%

“…In this paper, we provide an analytical characterization of non-cooperative tariff policy in an asymmetric one-sector twocountry Melitz (2003) model. Gros (1987) has studied optimal tariffs and the two-country Nash equilibrium for the Krugman (1980) model of monopolistic competition and trade in differentiated goods. This paper extends Gros (1987) to the case of firms differing with respect to productivity.…”

Section: Introductionmentioning

confidence: 99%

“…Gros (1987) has studied optimal tariffs and the two-country Nash equilibrium for the Krugman (1980) model of monopolistic competition and trade in differentiated goods. This paper extends Gros (1987) to the case of firms differing with respect to productivity. While markup pricing provides a rationale for import tariffs beyond the conventional terms-of-trade argument (Johnson, 1953), firm-level productivity heterogeneity may work against tariffs.…”

Section: Introductionmentioning

confidence: 99%

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Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model

Felbermayr¹,

Jung²,

Larch³

2013

Journal of International Economics

115

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper characterizes analytically the optimal tariff of a large one-sector economy with monopolistic competition and firm heterogeneity in general equilibrium, thereby extending the small-country results of Demidova and Rodriguez-Clare (JIE, 2009) and the homogeneous firms framework of Gros (JIE, 1987). The optimal tariff internalizes a markup distortion and a terms of trade externality. It is larger the higher the dispersion of firm-level productivities, and the bigger the country's relative size or relative average productivity. Furthermore, in the two-country Nash equilibrium, tariffs turn out to be strategic substitutes. Small or poor economies set lower Nash tariffs than large or rich ones. Lower transportation costs or smaller fixed market entry costs induce higher equilibrium tariffs and larger welfare losses relative to the case of zero tariffs. Similarly, cross-country productivity or size convergence increases the global welfare loss due to non-cooperative tariff policies. These results suggest that post WWII trends have increased the relative merits of the WTO. Terms of use: Documents inJEL-Code: F120, F130.

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Section: They Do Not Study How This Effect Interacts With the Terms-omentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model

Felbermayr¹,

Jung²,

Larch³

2013

Journal of International Economics

115

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“…Venables (1987) was the first to develop a version of the Krugman model that isolates production relocation effects. Gros (1987) was the first to develop a version of the Krugman model that isolates terms-oftrade effects. 6 Essentially, the positive profits made by domestic manufacturers as a result of import tariffs can be competed away either through entry, leading to a production relocation effect, or through an increase in wages, leading to a terms-of-trade effect.…”

Section: Introductionmentioning

confidence: 99%

A “New Trade” Theory of GATT/WTO Negotiations

Ossa

2011

Journal of Political Economy

203

112

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I suggest a novel theory of GATT/WTO negotiations based on Krugman's "new trade" model. It emphasizes international production relocations and is easy to calibrate to bilateral trade data. Focusing on the major players in recent GATT/WTO negotiations, I find that it implies reasonable noncooperative tariffs as well as moderate gains from GATT/WTO negotiations. A "New Trade" Theory of GATT/WTO Negotiations Ralph Ossa University of Chicago and National Bureau of Economic ResearchI suggest a novel theory of GATT/WTO negotiations based on Krugman's "new trade" model. It emphasizes international production relocations and is easy to calibrate to bilateral trade data. Focusing on the major players in recent GATT/WTO negotiations, I find that it implies reasonable noncooperative tariffs as well as moderate gains from GATT/WTO negotiations.

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“…Other related work is Gros (1987), who studies an import tariff game in the one-sector variant of the Krugman (1980) model. In that version of the model relocation effects are absent and the free trade allocation is Pareto-optimal.…”

Section: Related Literaturementioning

confidence: 99%

Trade policy: Home market effect versus terms-of-trade externality

Campolmi¹,

Fadinger²,

Forlati³

2014

Journal of International Economics

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We study trade policy in a two-sector Krugman (1980) trade model, allowing for production, import and export subsidies/taxes. We consider non-cooperative and cooperative trade policy, first for each individual instrument and then for the situation where all instruments can be set simultaneously, and contrast those with the efficient allocation. While previous studies have identified the home market externality, which gives incentives to agglomerate firms in the domestic economy, as the driving force behind non-cooperative trade policy in this model, we show that this, in fact, is not the case. Instead, the incentives for a non-cooperative trade policy arise from the desire to eliminate monopolistic distortions and to improve domestic terms of trade. As a consequence, terms-of-trade externalities remain the only motive for international trade agreements in the Krugman (1980) model once a complete set of instruments is available.

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A note on the optimal tariff, retaliation and the welfare loss from tariff wars in a framework with intra-industry trade

Cited by 177 publications

References 8 publications

Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model

Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model

A “New Trade” Theory of GATT/WTO Negotiations

Trade policy: Home market effect versus terms-of-trade externality

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