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Customs data reveal heterogeneity and granularity of relationships among buyers and sellers. A key insight is how more exports to a destination break down into more firms selling there and more buyers per exporter. We develop a quantitative general equilibrium model of firm-to-firm matching that builds on this insight to separate the roles of iceberg costs and matching frictions in gravity. In the cross section, we find matching frictions as important as iceberg costs in impeding trade, and more sensitive to distance. Because domestic and imported intermediates compete directly with labor in performing production tasks, our model also fits the heterogeneity of labor shares across French producers. Applying the framework to the 2004 expansion of the European Union, reduced iceberg costs and reduced matching frictions contributed equally to the increase in French exports to the new members. While workers benefited overall, those competing most directly with imports gained less, even losing in some countries entering the EU.

A hot issue in trade negotiations concerns the existence of stateowned firms and state subsidies. Disputes between the US and the EU and the issue of the recognition of the status of a market economy to China are often the epitome of that. In Germany the giant Volkswagen is state controlled, in China almost 1/3 of firms are state controlled and loom in almost all industries often with relevant or even dominant market shares. State enterprises maximize home social welfare. When they export or compete with foreign producers at home their specific objective function make them a useful vehicle for disguised trade policies. We investigate trade cases with oligopoly and state or quasi state owned firms. Increasing returns to scale come into the picture in some instances. Dumping and foreclosure of the domestic market emerge explaining both the possibility of having home prices higher or lower than export prices. Possible counteracting policies can be devised and an example of a production subsidy is presented.

Over the last 20 years the border-effect literature repeatedly documented the trade-reducing effect of inter- and intra-national borders. Thereby, the sheer size and persistence of observed border effects from the beginning raised doubts on the genuine effect of underlying borders. However, when so-called "border effects" result either from statistical artefacts or from differences in fundamentals, why should their spatial dimension then inevitably coincide with the geography of present or past political borders? This paper identifies a discontinuous trade reduction along a geographic dimension that neither existing nor defunct political borders can explain. Trade between the East and the West of Japan is 23.1% - 51.3% lower than trade within both country parts. Including a rich set of explanatory variables, suggests that recent agglomeration trends, reflected by the contemporaneous structure of Japan's business and social networks, rather than cultural differences, shaped by long-lasting historical shocks, can explain the east-west bias in intra-Japanese trade.

This paper investigates the relationship between trade liberalisation, consumers' environmental awareness and a negative environmental externality in consumption. We adopt an international Hotelling duopoly setup, where firms are located in two asymmetric countries. We find that, if the intensity of environmental externality is common knowledge for country governments, this setup delivers no need of accompanying trade policies in order to enforce trade liberalisation. In the opposite case, in which information is asymmetric, i.e., the small country's Government cannot observe the positive enviromental effects of its firm's exports to foreign consumers, we find that: (i) the Pareto optimum is always enforced, since the brown country always relaxes the distortionary trade policy, and (ii) cheating on the environmental externality allows the brown country's government to extract extra surplus from the green country. Allowing for trade in green technology delivers opposite conclusions: the externality is minimised and welfare is maximised in equilibrium if information is symmetric while trade liberalisation with asymmetric information always entails a second best outcome.

We analyze a stylized model of the world grain market characterized by a small oligopoly of traders with market power on both the supply and demand side. Crops are stochastic and exporting countries can impose export tariffs to protect domestic food prices. We show that export tariffs are strategic complements and that poor harvests can lead to a sharp increase in equilibrium tariffs. Due to the strategic interplay between the governments of exporting countries, traders can gain from a poor harvest in one of the countries. Furthermore, consumers in import countries can benefit from cooperation between grain exporting countries.

This paper investigates the impact of free trade on welfare in a two-country world modelled as an international Hotelling duopoly with quadratic transport costs and asymmetric countries, where a negative environmental externality is associated with the consumption of the good produced in the smaller country. Countries' relative sizes as well as the intensity of negative environmental externality affect potential welfare gains of trade liberalisation. In line with Lambertini (1997a) we show that, as long as no trade policy is undertaken by the government of the larger country, trade liberalisation is not feasible since the latter always loses from opening to trade. A subsidy policy in favour of the firm producing the clean good is, on the contrary, shown to give both countries the right incentives to liberalize trade. Allowing for redistributive transfers between countries further extends the parametric range for which trade liberalisation is feasible under the subsidy scheme. The alternative situation, in which the green firm is based in the larger country, is also briefly sketched to find that free trade does give rise to a global welfare increment with no need of accompanying trade policies.

Der Beitrag arbeitet die Diskussion um strategische Handelspolitik auf. Anhand ausgewählter Arbeiten wird insbesondere auf empirische Anwendungen und Erweiterungen des Grundgedankens in Richtung auf eine weitergehende Charakterisierung der Märkte und eine realitätsnähere Charakterisierung der Wirtschaftspolitik und ihrer Möglichkeiten eingegangen. Nach deutlich mehr als zehn Jahren ist das Argument der strategischen Handelspolitik keineswegs vom Tisch, zumal neuere Arbeiten in stärkerem Maße die Robustheit des Arguments belegen. Angesichts der mit strategischer Handelspolitik verbundenen kollektiven Dilemmata verbleibt insbesondere die Forderung nach internationaler Handelspolitik, die mit ihren Institutionen (Vergeltungs-) Mechanismen zur Verhinderung einzelstaatlich rationaler strategischer Handelspolitik bereitstellt. ; The paper offers a selective review of the literature on strategic trade policy. The main focus is on empirical applications and on attempts to extend the characterization of markets and to make the characterization of economic policy and its capabilities more realistic. More than ten years of intensive discussion have not been able eliminated the case for strategic trade policy. Recent work has shown the policy recommendations to be much more robust than previously thought. Since strategic trade policy creates collective dilemma situations, probably the most important conclusion is an increase in theoretical support for international institutions which provide retaliation mechanisms to make strategic trade policy unattractive.

The paper discusses the impact of environmental policies on international competitiveness of industries. Two positions are taken in the current debate on this issue. One the one hand, strict environmental policies are blamed for imposing substantiell costs which worsen international competitiveness. One the other hand, the competitiveness of firms may be improved in the long run because firms are encouraged to develop green technologies and may take a leading position on these world markets in the future (Porter-Hypothesis). The paper demonstrates that neither theoretical nor empirical evidence is able to support one of these conßicting positions in general. It shows the effects of environmental policies in different theoretical settings and discusses the problem in a model of perfect competition, in strategic environmental policy models of an international oligopoly, and in a model of firms' locational decisions. Many of the results are very sensitive to changes in parameters and assumptions and cannot be generalized. A survey of empirical studies concludes that there is no general clear evidence for neither a positive nor a negative impact of environmental policy on international competitiveness.

Abstract.  Constructing a two‐good (competitive and imperfectly‐competitive goods), two‐primary factor (capital and labor) and two‐country model of international trade where the imperfectly‐competitive sector is subject to increasing returns to scale, we establish an oligopolistic version of the Heckscher‐Ohlin theorem. JEL classification: F10, F12

This study considers endogenous determination of domestic standards on products that cause negative consumption externalities in the presence of a preferential trade agreement (PTA) in a three-country world. In particular, we examine how a PTA affects the optimal levels of external tariffs and standards, which are chosen by each country, and national welfare. In light of recent importance of standards or regulations that may act as nontariff barriers in PTAs, several questions will arise. Do standards become more or less stringent under a PTA than in the absence of it? After a formation of the PTA, do member or nonmember countries become better off? Do potential PTA members have an incentive to harmonize their standards? Among the several forms of PTAs, we focus on free trade areas (FTAs), where each member country chooses its external tariffs independently. We build a three-country oligopolistic trade model by incorporating the endogenous determination of standards by national governments. In this paper, we consider standards for controlling negative externalities generated by consumption of goods: setting a stringent standard eliminate negative consumption externality, and cost rise with the standard. In order to enter the importer country's market, foreign exporters must produce goods that meet the import's standard, and thus the standard can be a nontariff barrier. Governments are assumed to be benevolent, without any political incentives to set their respective standards. In this paper, we obtain the following results: (i) Compared with the policy game in the absence of FTAs, an FTA makes the member countries to choose more stringent standards. (ii) Regarding the national welfare in each country, the FTA member countries may or may be better off under the formation of an FTA, while the nonmember country becomes better off for the case of low degree of transboundary externalities. and (iii) By comparing the case in which FTA members independently determine their respective national standards with the case in which the FTA member countries harmonize their standards within the FTA, such harmonization of standards will lead the member countries to choose less stringent standards, and make the formation of the FTA more favorable, provided the degree of transboundary externalities is not so high.