Essays on strategic trade policy

Abstract

The first chapter considers a two-country two-sector third-market Cournot competition model to show that (i) a non-uniform rearrangement of the initially-uniform R&D subsidy/tax in a way which preserves the net government expenditure, or (ii) a non-uniform combination of R&D subsidies and taxes under initial free trade, increases the aggregate profit of the national firms without affecting other countries and, therefore, improves national and joint welfare of the trading countries. This provides a country with an incentive to create a national champion by treating its firms asymmetrically. The second chapter explains that the arguments of the first chapter remain valid under a variety of extensions including conjectural variations approach to the firms\u27 strategic behavior, asymmetric marginal costs and non-constant returns to scale. Domestic consumption of the oligopoly good and international R&D spill-over effects do not affect the arguments, either. The third chapter considers a two-country two-sector segmented-market Cournot duopoly under various scale economies to show that an intra-industry trade emerges from a reciprocal dumping incentive, and that a protective import tariff under non-constant returns to scale generates ‘intra-market profit shifting and profit creating effects’ and ‘cross-market substitution effects’. The cooperatively optimal tariff is smaller than the non-cooperative tariff but its sign is indeterminate, thus leading to the conclusion that the international efforts towards trade liberalization should be supported, although a managed trade ‘may’ be Pareto-superior to free trade depending on parameters