Robust rules for industrial policy in open economics

Dermot Leahy and J. Peter Neary

No 200021, Working Papers from School of Economics, University College Dublin

Abstract: 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.

Keywords: Cost-reducing investment; Export subsidies; Market-expanding investment; R&D subsidies; Strategic industrial policy; Strategic trade policy; Commercial policy; Subsidies; Competition, Imperfect; Industrial policy (search for similar items in EconPapers)
JEL-codes: F12 L13 (search for similar items in EconPapers)
Date: 2001-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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http://hdl.handle.net/10197/1281 First version, 2001 (application/pdf)

Related works:
Working Paper: Robust Rules for Industrial Policy in Open Economies (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:200021

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