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Country Size and Strategic Trade Policy: A Model of a Dominant Country Facing a Competitive Fringe

Jing Fang ()
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Jing Fang: School of Economics, Huazhong University of Science and Technology

Annals of Economics and Finance, 2018, vol. 19, issue 1, 279-300

Abstract: This paper develops a theory for why a large country might be special when it comes to pursuing strategic trade policy. Traditional theory holds that, a large country should hold back its exports to improve its terms of trade. However, if the learning-by-doing effect exists, then a large country has an incentive to subsidize exports. In this paper, I present a formal industrial organization (IO) model to capture this story. I embed this IO structure into a trade model with three goods. I also conduct some counter-factual analysis and welfare analysis about various trade policies of the importer countries.

Keywords: Country size; Strategic trade policy; Dominant country; Competitive fringe (search for similar items in EconPapers)
JEL-codes: F1 L1 L2 (search for similar items in EconPapers)
Date: 2018
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