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Trade liberalization has a significant impact on the environment and social welfare of countries. In the real world, almost all industries exist upstream and downstream firms but the existing literature on the impact of trade liberalization rarely discuss the interaction between upstream and downstream firms. The goal of this study is to analyze the effects of trade liberalization on the trade policies, environmental policies and social welfare of downstream exporting countries when different pricing schemes (uniform pricing vs. discriminatory pricing) are implemented by upstream monopoly firms. By constructing a three-stage dynamic game model we found that, regardless of pricing schemes, trade liberalization leads to increase both environmental taxes and import taxes. Trade liberalization increases the social welfare of downstream countries under discriminatory pricing, while trade liberalization first reduces and then increases the social welfare of downstream countries under uniform pricing. The results indicate that the downstream countries always have the incentive to participate in trade agreements that integrate markets when discriminatory pricing schemes will be implemented by upstream firms. This finding is the most significant contribution of this paper which has not been addressed in the previous literature.
Trade liberalization has a significant impact on the environment and social welfare of countries. In the real world, almost all industries exist upstream and downstream firms but the existing literature on the impact of trade liberalization rarely discuss the interaction between upstream and downstream firms. The goal of this study is to analyze the effects of trade liberalization on the trade policies, environmental policies and social welfare of downstream exporting countries when different pricing schemes (uniform pricing vs. discriminatory pricing) are implemented by upstream monopoly firms. By constructing a three-stage dynamic game model we found that, regardless of pricing schemes, trade liberalization leads to increase both environmental taxes and import taxes. Trade liberalization increases the social welfare of downstream countries under discriminatory pricing, while trade liberalization first reduces and then increases the social welfare of downstream countries under uniform pricing. The results indicate that the downstream countries always have the incentive to participate in trade agreements that integrate markets when discriminatory pricing schemes will be implemented by upstream firms. This finding is the most significant contribution of this paper which has not been addressed in the previous literature.
Upstream Pricing Schemes, Trade Liberalization, Trade and Environmental Policies of Downstream Countries
2018
Article (Journal)
Electronic Resource
Unknown
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