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Profit-Shifting Export Subsidies and the Sustainability of Free Trade

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  • Collie, David

Abstract

This paper analyzes trade wars and the sustainability of free trade in the J. A. Brander and B. J. Spencer (1985) model of profit-shifting export subsidies. It is shown that both countries will usually be worse-off if there is a trade war than under free trade but that one country may be better-off if its firm is very competitive. In an infinitely repeated version of the Brander-Spencer game, it is shown that free trade is sustainable as a perfect equilibrium if the two countries are sufficiently similar and the discount factor is sufficiently large. Copyright 1993 by Scottish Economic Society.

Suggested Citation

  • Collie, David, 1993. "Profit-Shifting Export Subsidies and the Sustainability of Free Trade," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(4), pages 408-419, November.
    • Handle: RePEc:bla:scotjp:v:40:y:1993:i:4:p:408-19
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    Cited by:

    1. Praveen Kujal & Juan Ruiz, 2003. "Policy Synchronization and Staggering in a Dynamic Model of Strategic Trade," International Trade 0302003, University Library of Munich, Germany.
    2. Yasushi Kawabata, 2010. "Strategic Export Policy In Vertically Related Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 62(2), pages 109-131, April.
    3. Collie, David R., 2019. "Trade Wars under Oligopoly: Who Wins and is Free Trade Sustainable?," Cardiff Economics Working Papers E2019/4, Cardiff University, Cardiff Business School, Economics Section.
    4. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455, Elsevier.
    5. Soegaard, Christian, 2013. "An Oligopolistic Theory of Regional Trade Agreements," The Warwick Economics Research Paper Series (TWERPS) 1007, University of Warwick, Department of Economics.
    6. Alexandr Knobel, 2010. "Factors of important Tariff Information," Research Paper Series, Gaidar Institute for Economic Policy, issue 143P.
    7. Roger Clarke & David R. Collie, 2008. "Welfare In The Nash Equilibrium In Export Taxes Under Bertrand Duopoly," Bulletin of Economic Research, Wiley Blackwell, vol. 60(2), pages 183-189, April.
    8. David Collie, 2000. "A Rationale for the WTO Prohibition of Export Subsidies: Strategic Export Subsidies and World Welfare," Open Economies Review, Springer, vol. 11(3), pages 229-245, July.
    9. Conconi, Paola, 2000. "Trade Bloc Formation Under Imperfect Competition," Economic Research Papers 269342, University of Warwick - Department of Economics.

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