Optimal Tariffs with Endogenous Entry Mode: Uniform Versus Discriminatory Tariffs

Wu Tsaur-Chin (), Lin Chin-Ho () and Chang Chia-Jen ()
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Wu Tsaur-Chin: Department of Public Finance, Feng Chia University, Taichung, Taiwan
Lin Chin-Ho: Department of Business Management, National Sun Yat-Sen University, Kaohsiung, Taiwan
Chang Chia-Jen: Department of Public Affairs and Civic Education, National Changhua University of Education, Changhua, Taiwan

The B.E. Journal of Economic Analysis & Policy, 2025, vol. 25, issue 4, 899-934

Abstract: This paper is the first to examine the welfare impact of two tariff regimes when firms’ entry mode is endogenously determined via export or foreign direct investment (FDI) under a three-country, two-firm model. First, both uniform and discriminatory tariffs reveal an asymmetrical entry mode, where the high (low)-cost firm prefers export (FDI) and vice versa. Second, if both high and low-cost firms choose export under uniform tariffs but the high (low)-cost firm chooses export (FDI) under discriminatory tariffs, the importing country prefers uniform tariffs, and global welfare is higher with uniform tariffs. Third, if the high (low)-cost firm chooses FDI (export) under uniform tariffs but export (FDI) under discriminatory tariffs, the importing country prefers uniform tariffs, and global welfare is greater with discriminatory tariffs.

Keywords: uniform tariff; discriminatory tariff; foreign direct investment (search for similar items in EconPapers)
JEL-codes: D43 F13 H21 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1515/bejeap-2025-0114

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