Trade Costs and Strategic Investment in Infrastructure in a Dynamic Global Economy with Symmetric Countries

Akihiko Yanase () and Ngo Long

CIRANO Working Papers from CIRANO

Abstract: This paper develops a two-country model of intra-industry trade with trade costs, which can be reduced by public investment in an international infrastructure capital, the stock of which accumulates over time. Taking the relationship between trade costs and national welfare into consideration, the governments carry out a dynamic game of public investment. We show that the dynamic equilibrium of the policy game may exhibit history dependency; if the initial stock of international infrastructure is smaller (larger) than a certain level, the infrastructure stock decreases (increases) over time, and the world economy will end up in autarky (two-way free trade) in the long run. We also show that international cooperation is beneficial in the sense that it may enable the world economy to escape from a "low-development trap". Cet article développe un modèle de commerce intra-industriel à deux pays avec des coûts commerciaux, qui peuvent être réduits par un investissement public dans un capital d'infrastructure internationale, dont le stock s'accumule avec le temps. Prenant en compte la relation entre les coûts commerciaux et le bien-être national, les gouvernements mènent un jeu dynamique d'investissement public. Nous montrons que l'équilibre dynamique du jeu entre les deux gouvernements peut présenter une dépendance de l'histoire; si le stock initial d'infrastructures internationales est inférieur (supérieur) à un certain niveau, le stock d'infrastructures diminue (augmente) au fil du temps et l'économie mondiale se retrouvera en autarcie (libre-échange bidirectionnel) à long terme. Nous montrons également que la coopération internationale est bénéfique : elle peut permettre à l'économie mondiale de sortir d’un «piège à faible développement».

Keywords: Public Infrastructure Capital; Intra-Industry Trade; Differential Games; Multiple Equilibria; Capital d'infrastructure; Commerce intra-industriel; Jeux différentiels; Multiplicité d'équilibres (search for similar items in EconPapers)
JEL-codes: C61 C73 F12 H54 H87 O18 (search for similar items in EconPapers)
Date: 2020-11-18
New Economics Papers: this item is included in nep-gth and nep-int
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Working Paper: Trade Costs and Strategic Investment in Infrastructure in a Dynamic Global Economy with Symmetric Countries (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2020s-59

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