Does arbitraging matter? Spatial trade models and discriminatory trade policies.
1991
Anania G. | McCalla A.F.
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.
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