Endogenous Quality Effects of Trade Policy

Working Paper No. 99-045/2

Posted: 22 May 2000

See all articles by José L. Moraga-González

José L. Moraga-González

VU University Amsterdam; University of Groningen

Jean-Marie Viaene

Erasmus University

Date Written: 1999

Abstract

We study the optimal trade policy against a foreign oligopoly with endogenous quality. We show that, under the Most Favoured Nation (MFN) clause, a uniform tariff policy is always welfare improving over the free trade equilibrium. However, a nonuniform tariff policy is always desirable on welfare grounds. First best policy typically consists of setting a subsidy on the low-quality product and a tax on high-quality one. Another example of such a nonuniform tariff policy is a Regional Trade Agreement (RTA). We show that, if a welfare improvement is possible through a RTA, it is always with the low- quality producing country that it has to be achieved.

Keywords: International Trade, Economic Integration, Quality

JEL Classification: F12, F13, F15

Suggested Citation

Moraga-Gonzalez, Jose Luis and Viaene, Jean-Marie, Endogenous Quality Effects of Trade Policy (1999). Working Paper No. 99-045/2, Available at SSRN: https://ssrn.com/abstract=217010

Jose Luis Moraga-Gonzalez (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

HOME PAGE: http://www.tinbergen.nl/~moraga/

University of Groningen

P.O. Box 800
9700 AV Groningen, Groningen 9700 AV
Netherlands

Jean-Marie Viaene

Erasmus University ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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