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Abstract:
This paper examines the impact of the emergence of regional blocs (customs unions) on the patterns of inter-bloc and intra-bloc trade when firms have the option to engage in direct investment (FDI). The consequences of bloc formation for exogenously given external tariffs is examined first. When two regional blocs co-exist and firms have the option to engage in FDI, all inter-bloc trade may cease--complete trade diversion that is replaced by inter-bloc FDI--investment creation. In such an event the volume of world trade declines, but this is more than offset by the increase in world output due to direct investment. Hence, total world output is the same as under free trade. Second, I investigate the optimal tariff that a trading bloc levies on imports from non-member countries. The equilibrium tariffs resulting from a non-cooperative game played by the trading blocs is restricted by the option to circumvent the tariff via two-way direct investment. Small set-up cost associated with FDI leads to low tariffs, and the outcome is almost free trade. Moderate set-up costs restrain the regional blocs from mutually harming one another through an escalation in the tariff war. Finally, the formation of two regional blocs enhances the welfare of all countries.

Abstract:
The authors investigate the choice of currency of invoicing in international trade under exchange rate fluctuations. Predictions derived from a model developed by Donnenfeld and Zilcha in 1991, and others, regarding the optimal choice of currency of invoice are tested for imports into Canada. The authors employ a unique dataset from Customs Canada that covers a six-year period and lists all currencies used for invoicing by industry. The empirical results support the hypothesis that there is a positive relationship between the extent of invoicing in the importer's national currency and exchange rate risk, and a negative relationship between invoicing in the exporter's currency as well as invoicing in a third currency and exchange rate risk. The empirical results further indicate that relative size of a country plays a role in determining the currency of invoicing.

Abstract:
When subsidies and tariffs are applied to imports with fluctuating prices, it is shown that the output response of domestic producers depends on market structure and their attitude toward risk. The domestic industry response is contrasted under two types of market structure, a monopoly and a competitive industry. Some unanticipated results suggest caution in the implementation of trade policy.

Abstract:
In this paper we investigate how strategic interactions among domestic and foreign producers influence the structure of the industry. Especially, we focus on the foreign firms choice between exporting versus servicing these markets by investing in a plant located in host country when is facing competition from a domestic oligopoly. The empirical investigation reveals that the relationship between FDI and tariffs is not as simple as previously thought. In highly concentrated industries, where strategic behaviour may play an important role, high tariffs rather than low tariffs may lead to less FDI and more imports.