Subcontracting and International Trade Policy

Wen-Jung Liang () and Ho-Chyuan Chen
Additional contact information
Wen-Jung Liang: Tamkang University, Postal: Department of Industrial Economics Tamkang University Tamsui, Taipei Hsien, Taiwan
Ho-Chyuan Chen: National Kaohsiung First University of Science & Technology

Journal of Economic Integration, 2003, vol. 18, 372-390

Abstract:

This paper examines the optimal trade policies when international subcontracting occurs between two competing firms. It shows that if the strategic substitutes effect dominates the cost saving transfer effect, then the exporting country will impose a different policy on each export. In contrast, if the cost saving transfer effect dominates the strategic substitutes effect, then the exporting country will impose a tax policy on both exports. However, there has never existed an optimal policy to subsidize the export of both the subcontracted product and final product. Even though the exporting firm assumes away its export of the final good, to subsidize the export of the subcontracted good is not necessarily an optimal policy for the exporting country. For the importing country, if the price elasticity of demand is sufficiently small and the marketing cost of the final product is large enough, then it is optimal to set a negative tariff.

Keywords: International subcontracting; Optimal trade policy; Nash bargaining (search for similar items in EconPapers)
JEL-codes: F13 L13 (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0239

Access Statistics for this article

Journal of Economic Integration is currently edited by Seongeun Kim

More articles in Journal of Economic Integration from Center for Economic Integration, Sejong University Contact information at EDIRC.
Bibliographic data for series maintained by Yunhoe Kim ().