Unilateral tariff liberalisation by developing nations is pervasive but our understanding of it is shallow. This paper strives to partly redress this lacuna on the theory side by introducing three novel political economy mechanisms with particular emphasis on the role of production unbundling. One mechanism studies how lowering frictional barriers to imported parts can destroy the correlation of interests between parts producers and their downstream customers. A second mechanism studies how Kojima’s pro-trade FDI raises the political economy cost of maintaining high upstream barriers. The third works via a general equilibrium channel whereby a developing country’s participation in the supply chains of advanced-nation industries undermines their own competitiveness in final goods, thus making final good protection more politically costly. In essence, the argument is that developing nations’ pursuit of the export-processing industrialisation undermines their infant-industry industrialisation strategies.
We develope a flying geese theory of North-South trade in which production location alternates between North and South as Northern quality-upgrading R&D and Southern catching-up R&D alternately become successful. Each variety of the good is born in North and continue to be produced in North until it becomes obsolete. The location of the dominant firms of the industry, however, shifts back and forth between North and South, as geese take turns to be the lead goose in the formation of flying geese.
We explore the effects of environmental and trade policies with negative consumption externalities when a domestic firm and a foreign rival produce imperfect substitutes and compete in the domestic market. Consumption of the foreign product generates more emissions than that of the domestic product. Emission taxes reduce emissions, harm the foreign firm, but may benefit the domestic firm. Tariffs could mitigate externalities more “effectively” than emission taxes. Consumption subsidies provided to the domestic product may raise emissions and worsen domestic welfare. Stringent environmental policies may induce the foreign firm to produce an environmentally friendly good, though environmental damages may increase.
In this paper we construct a two country model with a final good and an environmental good such as a pollution abatement equipment to examine the formation of comparative advantage based on the international differences of environmental policies and the effects of the emission tax under free trade. The main results of our paper are as follows. First, the subsidy on the environmental good purchase can be a substitute for the emission tax. That is, the government can impose the lower emission tax by raising the subsidy in order to achieve the first best allocation. Second, a raise in the emission tax decreases the relative price of the environmental good while a raise in the subsidy increases the relative price. Hence, ceteris paribus, the country with a higher emission tax or a lower subsidy on the use of the environmental good has a comparative advantage in this good. Third, the effects of the emission tax in one country on the amount of pollution and welfare depends on the specialization pattern under free trade.
This paper presents a two-country model of monopolistic competition in which production of differentiated products in the manufacturing sector lowers productivity in the agricultural sector through a cross-sector pollution externality. We show that free trade raises the spatial separation of the incompatible industries and is possibly harmful to the country that becomes a net exporter of the manufacturing products. Also, we reveal that with product differentiation, trade only in the manufacturing products can be the most beneficial trade regime for the country holding a comparative advantage in those products.
In recent years, the increased export of recyclable materials from Japan to Asia, particularly to China, has raised questions regarding Japanese recycling system for containers and packaging, which had assumed no transboundary movement of these materials when first implemented. Facing significant outflow, the Japanese government added the policy to the revised law to encourage local governments to transfer used plastic bottles to designated recyclers who process them for domestic manufactures of final products. However, it is questionable whether such a policy is beneficial as well as sustainable. This study attempts to provide an answer to this question by constructing a simple model of plastic bottle recycling and conducting a positive as well as a normative analysis of the export of recyclable materials in the context of increasing import demand and international market fluctuation.
Many studies have shown that a small number of firms with high productivity carry out FDI, but few studies have considered how country-specific attributes affect firm's choice of internationalization. This paper aims to investigate what factors vary the productivity-cutoff for overseas production and how these factors affect the activities of firms: the size of overseas production, the number of firms operating overseas production, the average domestic and overseas sales, and the relative share of overseas production to domestic production. The results of theoretical and empirical examination in this paper show that larger market size and shorter distance between two markets lower the productivity-cutoff for overseas production of Japanese firms, and that both larger market and shorter distance increase the number of firms operating overseas and the size of their overseas production.