Trade Costs and Strategic Investment in Infrastructure in a Dynamic Global Economy with Symmetric Countries

Arbeitspapier

This paper develops a two-country model of intraindustry trade with trade costs, which can be reduced by public investment in an international infrastructure capital, the stock of which accumulates over time. Depending on the trade costs and international distribution of manufac-turing firms, equilibrium patterns of trade are determined, and national welfare in each country is affected by these trade patterns. Taking the relationship between trade costs and national welfare into consideration, the governments carry out a dynamic game of public investment. We show that the dynamic equilibrium of the policy game may exhibit history dependency; if the initial stock of international infrastructure is smaller (larger) than a certain level, the infrastructure stock decreases (increases) over time, and the world economy will end up in autarky (two-way free trade) in the long-run. We also show that international cooperation is beneficial in the sense that it may enable the world economy to escape from a “low development trap.”

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 8707

Classification and Topics

• Classification: Wirtschaft ; Optimization Techniques; Programming Models; Dynamic Analysis ; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock ; International Fiscal Issues; International Public Goods ; Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
• Subject: public infrastructure capital ; intraindustry trade ; differential game ; multiple equilibria.

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Yanase, Akihiko ; Long, Ngo Van
• Event: Veröffentlichung
• (who): Center for Economic Studies and Ifo Institute (CESifo)
• (where): Munich
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/229525
• Last update: 10.03.2025, 11:42 AM CET