Intra-Industry Trade, Imperfect Competition, Trade Integration and Invasive Species Risk
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We analyze the linkage between protectionism and invasive species hazard in the context of imperfect competition, two-way trade, and multilateral trade liberalization, three major actual features of agricultural trade and policies in the real world. We revisit the reciprocal-dumping model with differentiated products, adding trade and agricultural policies into the framework in the presence of invasive-species risk associated with agriculture. We look at joint reduction of agricultural tariffs. This type of trade integration is much more likely to increase the damage from invasive species than predicted by unilateral trade liberalization under the classical HOS framework. We document the non-monotonic relationship between policy (trade barriers and farm subsidies) and the expected damages from invasive species. We illustrate our analytical results with a stylized model of the world wheat market.