Export Market Correlation and Strategic Trade Policy

Posted: 21 Nov 2000

See all articles by Mahmudul Anam

Mahmudul Anam

York University - Department of Economics

Shin-Hwan Chiang

York University - Department of Economics

Abstract

In the traditional models of strategic trade policy pioneered by Brander and Spencer, exports of the domestic firm, engaged in a Cournot-Nash competition with the foreign firm in a neutral market, must be subsidized to maximize national welfare. We demonstrate that when the firms play the Cournot-Nash game in two stochastic and positively correlated markets, it may be optimal to tax exports to the more volatile market while subsidizing it in the other. The policy combination reduces the amplitude of aggregate profit and raises the utility of the risk-averse firm in a manner similar to the theory of portfolio choice.

JEL Classification: D18, F12

Suggested Citation

Anam, Mahmudul and Chiang, Shin-Hwan, Export Market Correlation and Strategic Trade Policy. Available at SSRN: https://ssrn.com/abstract=238615

Mahmudul Anam (Contact Author)

York University - Department of Economics ( email )

4700 Keele St.
Toronto, Ontario M3J 1P3
Canada

Shin-Hwan Chiang

York University - Department of Economics ( email )

4700 Keele St.
Toronto, Ontario M3J 1P3
Canada
416-736-5083 (Phone)

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