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Journal of Economic Integration 2007 December;22(4) :973-994.
DOI: https://doi.org/10.11130/jei.2007.22.4.973
Strategic Export Policy in the Presence of Subcontracting
Ho-Chyuan Chen and 
Wen-Jung Liang 
National Kaohsiung First University of Science and Technology
Tamkang University
Copyright ©2007 Journal of Economic Integration
ABSTRACT

This paper examines the optimal export policies when ex ante negotiation over subcontract manufacturing occurs between two competing international-firms. It show that it could be optimal for the exporting country to adopt either a different or a parallel trade policy between the two exporting goods (the final product and the subcontracted product). However, a different trade policy that taxes the final-product export and subsidizes the subcontracted-product export is not ever optimal. When the exporting firm is a pure subcontractor, taxing the single export (subcontracted product) becomes the only optimal trade policy of the exporting country. Morever, the exporting country imposes a less aggressive trade policy in response given that the importing country inflicts a more aggressive trade policy.

JEL classification: F13 and L13

Keywords: Subcontracting | International Trade | Nash Bargaining | Trade Policy
 
REFERENCE
1. Brander, J.A., and B. J. Spencer, 1981, "Tariffs and the Extraction of Foreign Monopoly Rents Under Potential Entry," Canadian Journal of Economics 14, 371-389.
2. Brander, J.A., and B. J. Spencer, 1984a, "Trade Welfare: Tariffs and Cartels," Journal of International Economics 16, 227-242.
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