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Robust rules for industrial policy in open economics
Leahy, Dermot; Neary, J. Peter
The theory of strategic trade policy yields ambiguous recommendations for assistance to exporting firms in oligopolistic industries. However, some writers have suggested that investment subsidies are a more robust recommendation than export subsidies. We show that, though ambiguous in principle, the case for investment subsidies is reasonably robust in practice. Except when functional forms exhibit arbitrary non-linearities, it holds under both Cournot and Bertrand competition, with either cost-reducing or market-expanding investment, and with or without spillovers. Only if firms have strong asymmetries in their investment behaviour and engage in Bertrand competition is an investment tax clearly justified. The Economic and Social Research Council (ESRC)
Keyword(s): Cost-reducing investment; Export subsidies; Market-expanding investment; R&D subsidies; Strategic industrial policy; Strategic trade policy; F12; L13; Commercial policy; Subsidies; Competition, Imperfect; Industrial policy
Publication Date:
Type: Working paper
Peer-Reviewed: Unknown
Language(s): English
Institution: University College Dublin
Publisher(s): University College Dublin. School of Economics
File Format(s): other; application/pdf
First Indexed: 2012-08-25 05:22:52 Last Updated: 2018-10-11 15:45:14