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Trade liberalization, intra-industry trade and the environment: competition mode and the order of firms’ moves

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Abstract

This paper explores the implications of trade liberalization by extending the intra-industry trade framework à la Fung and Maechler (J Int Trade Econ Dev 16(1):53–69, 2007) to the case of sequential move and taking the mode of firms’ competition into consideration as well. It is shown that the existing results obtained for the case of simultaneous price competition are robust in quantity competition and sequential move cases. Moreover, it studies the likelihood that the environmental effects of trade liberalization occur.

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Notes

  1. Compared with Fung and Maechler (2005) who have analyzed the case of simultaneous quantity competition, Fung and Maechler (2007) make tiny modification in the demand side. Due to these two objectives, especially the second objective, sharper results for sake of comparison are required. Therefore, we in this paper still consider the case of simultaneous quantity competition.

  2. In this paper, we exclude the type of consumption-induced pollution. See Lai (2004), Ohori (2006) and Wang et al. (2007) for the environmental damage associated with consumption-induced pollution.

  3. See Fung and Maechler (2007, p. 57) for the interpretation of b > c.

  4. In the literature, cases I and II are intensively called the Cournot and the Stackelberg competition, respectively.

  5. If the trade liberalization is from the leader country and if both countries multilaterally liberalize the trade, we cannot obtain any striking result about this issue.

  6. See Propositions 2, 3 and 4 of Fung and Maechler (2007).

  7. The Proof of this argument is available upon request.

  8. See conditional expressions (13) and (14) of Fung and Maechler (2007).

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Acknowledgments

We are grateful to the managing editor (Anna Bagiotti) and an anonymous referee for their helpful comments and suggestions.

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Authors and Affiliations

  1. Department of Applied Economics, National University of Kaohsiung, No. 700, Kaohsiung University Road, Nan-Tzu District, 811, Kaohsiung, Taiwan, ROC

    Leonard F. S. Wang

  2. Department of Finance and Banking, Kun Shan University, 71003, Tainan Hsien, Taiwan, ROC

    Ya-Chin Wang

  3. Technology Import & Export and International Tendering Center, China HuanQiu Contracting & Engineering Corporation, 100029, Beijing, China

    Lihong Zhao

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  1. Leonard F. S. Wang
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  2. Ya-Chin Wang
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  3. Lihong Zhao
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Correspondence to Leonard F. S. Wang.

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Wang, L.F.S., Wang, YC. & Zhao, L. Trade liberalization, intra-industry trade and the environment: competition mode and the order of firms’ moves. Int Rev Econ 56, 133–144 (2009). https://doi.org/10.1007/s12232-008-0053-6

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