Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 1999-12-22
Number: 99-094/2
Author-Name: Jose Luis Moraga
Author-Email: j.l.moraga.gonzalez@rug.nl
Author-Workplace-Name: Groningen University
Author-Name: Jean-Marie Viaene
Author-Email: viaene@few.eur.nl
Author-Workplace-Name: Erasmus Universiteit Rotterdam
Title: Endogenous Quality Effects of Trade Policy
Abstract: We study the optimal trade policy against a foreign oligopoly withendogenous quality. We show that, under the Most Favoured Nation(MFN) clause, a uniform tariff policy is always welfare improvingover the free trade equilibrium. However, a nonuniform tariff policyis always desirable on welfare grounds. First best policy typicallyconsists of setting a subsidy on the low-quality product and a tax onhigh-quality one. Another example of such a nonuniform tariff policyis a Regional Trade Agreement (RTA). We show that, if a welfareimprovement is possible through a RTA, it is always with the low-quality producing country that it has to be achieved.
Classification-JEL: F12; F13; F15
Keywords: Endogenous Quality; Hedonic Prices; Most Favored Nation (MFN) clause; Optimal Tariff; Regional Trade Agreement (RTA)
File-Url: https://papers.tinbergen.nl/99094.pdf
File-Format: application/pdf
File-Size: 435200 bytes
Handle: RePEc:tin:wpaper:19990094