Trade policy dynamics, entry costs, and exchange rate uncertainty

This article analyzes trade policy dynamics when there are sunk costs of entry and demand uncertainty. A natural generalization of the classic export tax prescription for a domestic industry facing downward-sloping foreign demand is defined and implemented as a dynamic competitive equilibrium with fully rational firms. The optimal tax rate adjustment policy is a trigger strategy. This provides a rationale for infrequent revisions of trade policy in response to exogenous shocks.

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Year of publication:	2012
Authors:	Kongsted, Hans Christian
Published in:	The Journal of International Trade & Economic Development. - Taylor & Francis Journals, ISSN 0963-8199. - Vol. 21.2012, 2, p. 197-216
Publisher:	Taylor & Francis Journals

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010618526