Bilateralism is good: trade blocs and strategic export subsidies

Collie, D. R. ORCID: https://orcid.org/0000-0002-3132-648X 1997. Bilateralism is good: trade blocs and strategic export subsidies. Oxford Economic Papers 49 (4) , pp. 504-520. 10.1093/oxfordjournals.oep.a028622

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Abstract

This paper considers the effect of exogenous trade bloc enlargement in a multi-country version of the Brander-Spencer export subsidy game. In the single-shot game, it is shown that trade bloc enlargement leads to a reduction in the Nash equilibrium export subsidies and thereby increases the welfare of the exporting countries. Although the welfare of the importing countries decreases, world welfare may increase if the export subsidies are financed by distortionary taxation. When the export subsidy game is infinitely repeated, it is shown that trade bloc enlargement reduces the critical discount factor making it easier to sustain free trade.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Publisher:	Oxford University Press (OUP): Policy F - Oxford Open Option D
ISSN:	0030-7653
Last Modified:	03 Nov 2022 10:11
URI:	https://orca.cardiff.ac.uk/id/eprint/107209

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