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A Test of a Theory of Strategically Retaliatory Trade Barriers

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  • Kishore Gawande

Abstract

Within a game‐theoretic lobbying model, the formation of strategic trade barriers is examined. Trade barriers are modeled as comprising a political component as well as a strategically retaliatory component that serves to deter foreign protectionism. Within this theoretical framework, the optimal policy is to erect retaliatory barriers against all imports even though the partner country protects only a subset of goods that are traded. The theory is described and tested using cross‐industry U.S. nontariff barrier (NTB) data against nine developed countries in 1983. A three‐equation simultaneous Tobit model is estimated for this purpose. Whether U.S. NTBs against these partner countries are retaliatory and, if so, whether the cross‐industry structure of protection validates the predictions of the theory are empirically addressed.

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  • Kishore Gawande, 1997. "A Test of a Theory of Strategically Retaliatory Trade Barriers," Southern Economic Journal, John Wiley & Sons, vol. 64(2), pages 425-449, October.
    • Handle: RePEc:wly:soecon:v:64:y:1997:i:2:p:425-449
    DOI: 10.1002/j.2325-8012.1997.tb00065.x
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