Citation

Discussion Paper Details

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Title: The Welfare Effects of Imperfect Harmonization of Trade and Industrial Policy

Author(s): Konstantine Gatsios and Larry Karp

Publication Date: October 1989

Keyword(s): Customs Union, Industrial Policy, Oligopoly and Trade Policy

Programme Area(s): International Trade and Regional Economics

Abstract: Partial cooperation in setting trade policy may be worse than no cooperation for countries who form a customs union. The paper investigates three situations where this is likely to occur. First, if the countries forming the union comprise too small a percentage of the non-competitive sector of the industry, their cooperation may be disadvantageous for essentially the same reason that a merger may be disadvantageous in oligopolistic industries. Second, even if the countries forming the union comprise the entire non-competitive sector of industry, cooperation on trade policy may be disadvantageous if industrial policy (e.g., investment subsidies) is chosen noncooperatively. Third, cooperation in choosing trade policies may encourage excessive investment by competitive importers and thus reduce the demand faced by the oligopolists.

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Bibliographic Reference

Gatsios, K and Karp, L. 1989. 'The Welfare Effects of Imperfect Harmonization of Trade and Industrial Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=335