The Effects of Strategic Subsidies under FTA with ROO

Kazuhiro Takauchi

Asia-Pacific Journal of Accounting & Economics, 2010, vol. 17, issue 1, 57-72

Abstract: This paper presents a model of a free trade area (FTA) with rules of origin (ROO) under an oligopolistic final goods market. Following the existing literature, we also consider ROO to serve as a protectionist device and mainly focus on the interaction between ROO and the subsidy policy. A paradoxical result is considered: if the government of the final goods exporter within the FTA is the first mover, it chooses export tax. Furthermore, we show that the profit of a firm located in the FTA increases due to a reduction in the external tariff.

Date: 2010
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DOI: 10.1080/16081625.2010.9720852

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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