Export Competition between Landlocked and Coastal Countries: An Analysis of Strategic Export Policies

• Author: Bakar Normizan,Ishii Yasunori
• DOI: http://doi.org/10.1111/rode.12120
• Published date: 01 November 2014
• Date: 01 November 2014

Export Competition between Landlocked and

Coastal Countries: An Analysis of Strategic

Export Policies

Bakar Normizan and Ishii Yasunori*

Abstract

This paper analyzes economic rivalry between two firms using an international Cournot duopoly model,

where a firm from a landlocked country (LC) and a firm from a coastal country (CC) compete in a third-

country market. It is assumed that the landlocked country firm adopts a transport-cost reducing R&D sub-

sidized by its government, while the CC government imposes a toll fee on the LC firm. The findings show

since a change in the LC’s transport-cost reducing R&D subsidy has a positive effect on its export and a

negative effect on the CC’s export, both measures have effective strategic export policies.

1. Introduction

Landlocked developing countries in Central Asia, Southeast Asia and Africa have a

comparative disadvantage when exporting their products, due in part to their geo-

graphical location. As trade with nonadjacent countries needs an ocean mode, owing

to their greater distance to ports in coastal countries, landlocked countries generally

pay higher transportation costs.1In some cases, toll fees are imposed by the coastal

countries.2Thus, their geography poses a burden that affects their trade volumes, and

land transportation has limitations in transporting volumes and fragile goods.3

Because landlocked countries depend on a seaport located at coastal neighboring

countries, their economies are primarily affected not only by the high freight costs but

also by a significant unpredictability in transport time, transportation facility’s quality

and trade policies of their neighboring coastal countries.4The poor performance of

transit logistics, inefficiency of the transportation system, and the regulations, policies

and toll fees imposed by coastal countries, altogether, lead to a relatively higher cost

of transportation for landlocked countries.5Therefore, the firms and governments of

such countries have the incentives to implement certain policies for improving their

comparative advantage. Simultaneously, it can also be assumed that neighboring

coastal countries may take countermeasures against such policies. In this paper, we

analyze such international trade rivalry between landlocked and coastal countries.6

Although there are several types of trade strategies adopted by landlocked and

coastal countries in the circumstances mentioned above, this paper focuses on the

most typical case. We suppose that a landlocked country firm engages in a trans-

portation cost-reducing R&D investment involving fuel-efficient, and quantity and

* Normizan: School of Economics, Finance and Banking, University Utara Malaysia, 06010 Sintok, Kedah,

Malaysia. Tel: +60-135921975; Fax: +60-4-9286752; E-mail: normizan@uum.edu.my. Yasunori: Graduate

School of Economics, Waseda University, 1-6-1 Nishi Waseda, Shinjuku-ku, Tokyo, Japan 169-8050. The

authors have benefited from useful comments and suggestions from anonymous referees and participants at

the 43rd Annual meeting of Canadian Economic Association held at the University of Toronto. They also

acknowledge a partial financial support from the Ministry of Education, Culture, Sports, Science and Tech-

nology of Japan.

Review of Development Economics, 18(4), 804–812, 2014

DOI:10.1111/rode.12120

© 2014 John Wiley & Sons Ltd