The Welfare Effect of International Cost Harmonization (original) (raw)

Trade Integration, Welfare, and Horizontal Multinationals: A three-country model

In this paper, we construct a three-country model with national and multinational (multi-plant) firms, in which oligopolistic firms in each country export their goods to other countries. We investigate the effects of trade liberalization between two countries on the third country. When the fixed costs of foreign direct investment (FDI) are sufficiently large, the firm does not conduct FDI, and trade liberalization always reduces the welfare level of the third country. When the fixed costs of FDI are small, trade liberalization may improve the welfare level of the third country. In addition, we observe cases under which trade liberalization between two of the countries improves the welfare of all three countries. In those cases, the two countries have incentives to join a free trade agreement (FTA), while the third country has no incentive to do so.

Asymmetric transport costs and welfare implications through a firm-delocation effect

Journal of Economic Studies, 2020

PurposeWith the use of a two-region monopolistically competitive model, the paper primarly studies how unilateral changes in a country's intra-regional and/or inter-national transport costs affect its own and its trading partner's welfare. Moreover, by considering a three-region monopolistically competitive model that consists of an external region and two integrated regions, with the one having a location advantage with respect to the external market, the paper studies how within-country asymmetries in transport costs affect trading partner's welfare.Design/methodology/approachThis paper examines how investments in the infrastructure affect welfare in the home country and in its trading partner by primarily using a model with direction-specific intra-regional and inter-national trade costs. Moreover, it focuses on the within-country asymmetries in transportation costs and their impacts on trading partners' welfare.FindingsThe first model shows that a unilateral redu...