Tariff Policy and Transport Costs under Reciprocal Dumping

This paper analyzes tariff competition by investigating the strategic interactions among firms that are highly mobile across national boundaries. Although high transport costs yield a geographic dispersion of the industry, sufficiently low transport costs result in a core-periphery location where nobody bears tariff burdens. In any case, the world economy would be in a much better position under an international coordination scheme. An economy is only required to enforce a weak international trade agreement for improving global welfare.