Robust Rules for Industrial Policy in Open Economies

J. Peter Neary and Dermot Leahy

No 2731, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The theory of strategic trade policy yields ambiguous recommendations for assistance to exporting firms in oligopolistic industries. Some writers have, however, 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 (search for similar items in EconPapers)
JEL-codes: F12 L13 (search for similar items in EconPapers)
Date: 2001-03
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Citations: View citations in EconPapers (34)

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Related works:
Journal Article: Robust rules for industrial policy open economies (2001)
Working Paper: Robust rules for industrial policy in open economics (2001)
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