Parallel Trade in General Equilibrium
Type
working paper
Date Issued
2024-04
Author(s)
Abstract
We introduce a simple two-country, monopolistic competition model of parallel trade policy with potentially imperfect enforcement of parallel trade prohibition. Consumers have 0/1 preferences such that large per capita income differences can induce some Northern firms to refrain from exporting to the South in order to avoid international arbitrage. We show that parallel trade restrictions have a pro-competitive effect on prices and change the terms of trade in favour of the poor country. Hence, the South prefers to ban parallel trade while the North prefers to allow it. The global welfare-maximising policy is to forbid parallel trade. Moreover, trade liberalisation increases the terms of trade of the South if there is a sufficiently strong parallel trade prohibition. Introducing income heterogeneity within countries may reveal diverging preferences on parallel trade policy between rich and poor consumers.
Language
English
Keywords
non-homothetic preferences
parallel imports
North-South trade
income inequality JEL classification: F10
F12
F13
HSG Classification
contribution to scientific community
Refereed
No
Subject(s)
File(s)![Thumbnail Image]()
Name
GE_parallel_trade.pdf
Size
2.97 MB
Format
Adobe PDF
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