Essays on international trade, endogenous quality and invasive species risk

Anh Thuy Tu

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: This dissertation studies the relation between international trade and two issues that have become the active fields of economic research: the firms' quality decisions and the invasive species risk.;On the quality choice, the dissertation focuses on the impact of Voluntary Import Expansions (VIEs) on firms' quality decisions. I model a vertically differentiated international duopoly, with one firm in each country. A domestic and an exporting firm choose the quality of their goods and then compete in the domestic market. Both quantity and price conjectures are considered. The paper investigates the case where the government of the exporting country imposes a VIE before firms' quality decision. I show that the VIE is a powerful protection to the exporting firm not only at the quantity or price competition stage but also when the impact of VIE on quality choice are taken into account. I also indicate the possibility that a VIE below the laissez faire solution binds.;On the invasive species (IS) risk, the dissertation analyzes the linkage between protectionism and invasive species hazard in the context of two-way trade and multilateral trade liberalization. In a perfectly competitive two way trade model, I show that the multilateral trade integration is much more likely to increase the damage from invasive species than predicted by unilateral trade liberalization under the classical Heckscher-Ohlin-Samuelson framework. I also find that market structure does not affect the qualitative results. I illustrate the analytical results with a stylized model of the world wheat market.;The dissertation also investigates the interface between tariff escalation and invasive species risk, with a focus on the agricultural and food-processing sectors. Tariff escalation in processed agro-forestry products exacerbates the risk of IS by biasing trade flows towards increased trade of primary commodity flows and against processed-product trade. I show that reductions of tariff escalation by reduction of the tariff on processed goods increase allocative efficiency and reduce the IS externality, a win-win situation. I also identify policy menus for trade reforms involving tariffs on both raw input and processed goods leading to win-win situations.

Date: 2005-01-01
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