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Does Arbitraging Matter? Spatial Trade Models and Discriminatory Trade Policies
Author(s) -
Anania Giovanni,
McCalla Alex F.
Publication year - 1991
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1242887
Subject(s) - subsidy , economics , yield (engineering) , variance (accounting) , set (abstract data type) , econometrics , international trade , computer science , materials science , accounting , market economy , metallurgy , programming language
When modeling discriminatory trade policies, such as targeted embargoes or targeted subsidies, failure to explicitly include assumptions about the possibility of simultaneous exporting and importing may yield misleading results. Nonlinear programming and “vector sandwich” models implicitly set rules regarding arbitraging which may be at variance with actual policies and/or country behavior. The paper introduces an alternative spatial model which allows the researcher to explicitly incorporate her own assumptions about arbitraging. An analysis of the 1980 U.S. embargo to the USSR shows how the proposed model performs relative to the most frequently used spatial trade models.