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Trade Restrictions on Parallel Imports Moves a Firm to Export

Update Date: Apr 15, 2012 12:57 AM EDT

Imposing trade restrictions on parallel imports has the effect of motivating a firm to export, according to a new study.

Santanu Roy, Professor at Southern Methodist University, and Kamal Saggi, Professor at Vanderbilt University, found that diverse parallel importing policies among countries today make it possible to analyze for the first time how competition between firms and allowing or banning parallel imports can influence competition in foreign and domestic markets.

"Our research is the first to look at the consequence of strategic policy setting by governments in the context of competition in domestic and foreign markets," Roy said.

Most surprising among the findings, he said, is that imposing trade restrictions on parallel imports can actually motivate a firm to export - when the market to which it is exporting is smaller than its own.

"So even though you are formally prohibiting the import of a product, you are actually promoting trade," Roy said. 

The researchers release their findings in two articles: "Equilibrium Parallel Import Policies and International Market Structure," forthcoming in the Journal of International Economics; and "Strategic Competition and Optimal Parallel Import Policy," forthcoming in the Canadian Journal of Economics. 

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