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Trade Policies for Exporting Industries under Free Entry

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  • Roberto A. De Santis
  • Frank Stähler

Abstract

This paper computes optimal export taxes and domestic production subsidies for exporting industries under free entry. We show that domestic welfare is not at maximum, as is typically believed, when the export price is a monopoly price, and the domestic price is a competitive price, because a market structure effect has to be taken into account. Furthermore, we show that the optimal tax/subsidy formulas for an oligopoly coincide with those under perfect competition, if foreign and domestic demand functions are both linear. We also discuss optimal trade policies when only one instrument is available, and we run numerical simulations to determine and compare optimal trade taxes under endogenous and exogenous market structures.

Suggested Citation

  • Roberto A. De Santis & Frank Stähler, 2001. "Trade Policies for Exporting Industries under Free Entry," German Economic Review, Verein für Socialpolitik, vol. 2(4), pages 327-338, November.
    • Handle: RePEc:bla:germec:v:2:y:2001:i:4:p:327-338
    DOI: 10.1111/1468-0475.00043
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    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    2. Roberto A. De Santis, 2000. "Optimal Export Taxes, Welfare, Industry Concentration, and Firm Size: A General Equilibrium Analysis," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 319-335, May.
    3. Delipalla, Sofia & Keen, Michael, 1992. "The comparison between ad valorem and specific taxation under imperfect competition," Journal of Public Economics, Elsevier, vol. 49(3), pages 351-367, December.
    4. repec:bla:reviec:v:8:y:2000:i:2:p:319-35 is not listed on IDEAS
    5. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 383-406.
    6. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Paper 517, Economics Department, Queen's University.
    7. Markusen, James R. & Venables, Anthony J., 1988. "Trade policy with increasing returns and imperfect competition : Contradictory results from competing assumptions," Journal of International Economics, Elsevier, vol. 24(3-4), pages 299-316, May.
    8. Rodrik, Dani, 1989. "Optimal trade taxes for a large country with non-atomistic firms," Journal of International Economics, Elsevier, vol. 26(1-2), pages 157-167, February.
    9. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    10. Venables, Anthony J., 1985. "Trade and trade policy with imperfect competition: The case of identical products and free entry," Journal of International Economics, Elsevier, vol. 19(1-2), pages 1-19, August.
    11. Horstmann, Ignatius J. & Markusen, James R., 1986. "Up the average cost curve: Inefficient entry and the new protectionism," Journal of International Economics, Elsevier, vol. 20(3-4), pages 225-247, May.
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