Why Industrial Policies Fail: Limited Commitment

Larry Karp and Jeffrey Perloff

No 450, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Government policies designed to give domestic exporters a strategic advantage in world markets are completely effective only if the government can commit to those policies for as long as they affect firms' decisions. Export subsidies or other output policies that affect firms only in the current period could, it is true, be used strategically without long-term commitments, but international agreements or fears of retaliation limit their use. The shorter the period of a government's commitment to an investment or industrial policy that affects firms over many periods, the less its strategic value, because the government loses the "first mover" advantage it would have in a one-period market.

Keywords: Commercial Policy; Exports; Industrial Policy; Subsidies; Trade Agreements (search for similar items in EconPapers)
JEL-codes: E61 F13 L52 (search for similar items in EconPapers)
Date: 1990-08
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Why Industrial Policies Fail: Limited Commitment (1995)
Working Paper: Why industrial policies fail: limited commitment (1993)
Working Paper: Why industrial policies fail: limited commitment (1993)
Working Paper: Why Industrial Policies Fail: Limited Commitment (1993)
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