Optimal tariffs for the co-existence of exporting and non-exporting firms

Kazuhiro Takauchi and Tomomichi Mizuno

No 2214, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: We consider an optimal tariff policy with the coexistence of less efficient non-exporting and efficient exporting firms. Using a two-way oligopoly trade model with a firm's quadratic cost, we show that the optimal tariff rate is U-shaped with respect to the efficiency of non-exporting firms. This implies that under tariff competition, if relative production efficiency increases, both possibilities appear, that is, trade liberalization or protectionism can progress. We also show that the profit of the non-exporting firm can be greater than that of the exporting firm when the production efficiency of the non-exporting firm is sufficiently high.

Keywords: Optimal tariff; non-exporting firm; Quadratic cost (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2022-10
New Economics Papers: this item is included in nep-int
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