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Export-Investment Subsidies in the Presence of Import Protection

Richard Harris and Nicolas Schmitt ()

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: In this paper, we investigate endogenous foreign direct investment incentives in an export sector when the tariff is exogenously given. Using a cost-benefit rule to determine export-investment incentives, authorities are shown to set subsidies which neutralize the effects of tariffs and which correspond to their welfare-maximizing level. Extending the model to two countries, we show that, depending on the level of protection, the strategic interaction between export authorities may result in an increase or a decrease in export capacity allocated to the low-wage country as compared to the outcome without export-investment subsidies.

Keywords: EXPORTS; INVESTMENTS; IMPORTS; SUBSIDIES (search for similar items in EconPapers)
JEL-codes: F13 F21 (search for similar items in EconPapers)
Pages: 27 pages
Date: 1997
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