Working Paper: NBER ID: w29026
Authors: Sebastian Galiani; Jos Manuel Paz y Mio; Gustavo Torrens
Abstract: We develop a simple (incumbent versus entrant) strategic deterrence model to study the economic and geopolitical interactions underlying international trade-related infrastructure projects such as the Panama Canal. We study the incentives for global geopolitical players to support allied satellite countries where these projects are or could potentially be built. We show that even if no effective competitor emerges, the appearance of a geopolitical challenger capable of credibly supporting the entrant has a pro-competition economic effect which benefits consumers all over the world.
Keywords: No keywords provided
JEL Codes: H0; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| geopolitical challengers (e.g., China) (F52) | strategic decisions of incumbent powers (e.g., the United States) (F52) |
| appearance of a geopolitical challenger (F52) | pro-competitive effect (L49) |
| geopolitical commitment (F52) | market entry outcomes (L19) |
| support from global ally of the entrant (P33) | entry of Nicaragua (F55) |
| entry of Nicaragua (F55) | transition from monopoly (Panama) to duopoly (Panama and Nicaragua) (L43) |
| transition from monopoly (Panama) to duopoly (Panama and Nicaragua) (L43) | reduced prices for consumers (P22) |
| commitment from rising global power (China) (F01) | likelihood of entry (L26) |
| intermediate levels of commitment from rising power (D74) | incumbent expands capacity (D25) |