Optimal Trade Policy in Vertically Related Markets

Fang-yueh Chen ()
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Fang-yueh Chen: National Chung-Cheng University, Postal: Department of Economics, National Chung-Cheng University, 160 San-Hsing, Ming-Hsiung, Chia-Yi, Taiwan, R.O.C

Journal of Economic Integration, 1998, vol. 13, 199-215

Abstract:

We examine home country tariff and subsidy policies when a domestic firm uses an imported key input to produce its low-quality exports, and foreign firms produce high-quality exports as well as the key input. We show that the deci - sions of foreign vertically integrated firms on strategy regarding input supply depend on the tarif f-inclusive and quality-adjusted comparative advantage between countries. We prove that the home country’s optimal policy is to tax either its goods exports or its key input imports. We also show that without ver - tical integration, if and only if goods are not very quality-differentiated, the home country should subsidize either its goods exports and/or its key input imports.

Keywords: Optimal; Trade; Policy (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0071

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