Cross‐border Travellers and Parallel Trade: Implications for Asian Economies

Abstract

Abstract This paper explores the impact of parallel trade in an export market by cross‐border travellers on welfare of the home country in a model with heterogeneous consumers' perceptions. We show that such parallel trade when it is organised trading always hurts the home‐country welfare. However, when parallel trade is unorganised trading, it might benefit the home‐country welfare provided that the size of the export market is relatively small. Along these lines, we suggest optimal policy responses in the home country to parallel trade by cross‐border travellers. The results of the paper yield insightful policy implications for Asian economies.

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