Tariff Revenue Competition in a Free Trade Area: The Case of Asymmetric Large Countries

13 Pages Posted: 2 May 2007

See all articles by Taiji Furusawa

Taiji Furusawa

University of Tokyo

Naoto Jinji

Okayama University - Economics

Abstract

The striking result has been shown by Richardson that tariff revenue competition between two symmetric member countries of a free trade area (FTA) results in complete elimination of external tariffs if there exists a pure-strategy Nash equilibrium at all. Richardson also conjectures without building a model that if member countries are asymmetric in market size, there exists a pure-strategy Nash equilibrium in which both countries set positive external tariffs. We explicitly extend his tariff competition model into the case of asymmetric FTA member countries, and confirm his conjecture. We also show that there exists a mixed-strategy Nash equilibrium in the case of symmetric countries.

Suggested Citation

Furusawa, Taiji and Jinji, Naoto, Tariff Revenue Competition in a Free Trade Area: The Case of Asymmetric Large Countries. Review of Development Economics, Vol. 11, No. 2, pp. 300-312, May 2007. Available at SSRN: https://ssrn.com/abstract=982717 or http://dx.doi.org/10.1111/j.1467-9361.2007.00402.x

Naoto Jinji

Okayama University - Economics ( email )

3-1-1 Tsushima-Naka
Okayama, 700-8530
Japan

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