Three essays in imperfect competition, political economy and international trade

Abstract

This Thesis has two themes: (1) political economy of international trade and factor mobility policy; (2) the robustness of strategic trade and industrial policy.

Chapter 1 is a non-technical introduction of my research.

In Chapter 2, Double-edged incentive competition for FDI, we study the impact of special interest lobbying on competition between two countries for a multinational in a common agency framework. \Ve address the following questions. On the positive side, is special interest lobbying a determinant of competition for FDI? If so, how does it work? How does it affect the equilibrium price for attracting FDI? On the normative side, what are the welfare effects of FDI competition when special interest lobbying is present? Is allocative efficiency always achieved? We argue that special interest lobbying provides an extra political incentive for a government to attract FDI. We show that compared to the benchmark case when governments maximize national welfare, now (1) an economically disadvantageous country has a chance to win the competition; (2) the equilibrium price for attracting FDI is higher than in the benchmark case; (3) allocative efficiency cannot be always achieved.

In Chapter 3, Advertising in a differentiated duopoly and its policy implications for an open economy, we develop a model of advertising in a differentiated duopoly in which firms first decide how much to invest in cooperative or predatory advertising and then engage in product market competition (Cournot or Bertrand). We then use this model, with the type of advertising endogenously determined, to explore the policy implications in the context of a Brander-Spencer third-country model of strategic trade. Among results derived from this model, most interestingly we show that for a range of parameter values we get robust trade policy in which governments always use a trade subsidy irrespective of the type of advertising or form of market competition.

In Chapter 4, Is export subsidy a robust trade policy recommendation towards a unionized duopoly, we argue that although previous researches imply that the robust trade policy recommendation towards a unionized duopoly is an export subsidy, we cannot get such a result even in the linear case if the opportunity cost of public funds is sufficiently high. However, if we consider the case where the domestic firm and the trade union lobby the government to set their favorable trade policies by giving the government political contributions (modeled in a common agency setting), then the result of robustness will be restored if the government cares about the political contributions sufficiently relative to national welfare.

See Chapter 5 for some technical proofs.

More information

Identifiers

ORCID for Jian Tong: orcid.org/0000-0001-9367-4853

Catalogue record

Export record