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Essays on MFN tariffs and Optimal Discriminatory Tariffs

Kim, Minjung
Thesis/Dissertation; Online
Kim, Minjung
Anderson, Simon
Blanchard, Emily
Mclaren, John
Pepper, John
This dissertation is a collection of three essays discussing the import tariff policy of the optimal discriminatory tariff and Most Favored Nation (MFN) tariff. It attempts to combine three branches of literature, optimal discriminatory tariff and MFN tariff, Industrial Organization (IO), and Preferential Trade Agreement (PTA), to analyze the import tariff policy and the endogenous investment decision of exporting firms under each tariff policy. The first essay analyzes the effect of the MFN tariff regime and the optimal discriminatory tariff regime on process R&D and product R&D investment of foreign exporting firms. By using a four-stage game framework, this essay provides the analysis of the complementarity of the process R&D and product R&D choices under Bertrand competition and the welfare of a home importing country under each tariff regime. The second essay analyzes the strategic interaction of an exporting country's industrial R&D policy, a subsidy or a tax, against an importing country's tariff policy, the optimal discriminatory tariff regime or the MFN tariff regime. This essay provides the analysis of how the equilibrium level of the cost reducing R&D investment of exporting firms is affected by its government's R&D policy, which in turn is also affected by the import tariff policy of an importing country. The third essay explains the magnitude and directional changes in the MFN tariffs after the formation of a Free Trade Agreement (FTA) by introducing two conflicting effects, rent extraction effect and tariff complementary effect. It provides an analysis of the optimal discriminatory tariffs, the MFN tariff, and the external tariff under product heterogeneity, different levels of market competition, and different market structures. This paper also shows that the MFN principle results in asymmetric investment decision between two exporting countries with the initial cost asymmetry, which induces a home country to form i an FTA to circumvent the equal treatment under General Agreement on Tariffs and Trade (GATT). Furthermore, this essay provides the empirical implication by using a case of the Association of South East Asian Nations (ASEAN) FTA. Note: Abstract extracted from PDF text
University of Virginia, Department of Economics, PHD (Doctor of Philosophy), 2009
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PHD (Doctor of Philosophy)
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