Trade policy dynamics, entry costs, and exchange rate uncertainty

Hans Christian Kongsted

The Journal of International Trade & Economic Development, 2012, vol. 21, issue 2, 197-216

Abstract: This article analyzes trade policy dynamics when there are sunk costs of entry and demand uncertainty. A natural generalization of the classic export tax prescription for a domestic industry facing downward-sloping foreign demand is defined and implemented as a dynamic competitive equilibrium with fully rational firms. The optimal tax rate adjustment policy is a trigger strategy. This provides a rationale for infrequent revisions of trade policy in response to exogenous shocks.

Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jitecd:v:21:y:2012:i:2:p:197-216

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DOI: 10.1080/09638191003599527

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