Export-Investment Subsidies in the Presence of Import Protection
Richard Harris and
Nicolas Schmitt ()
Discussion Papers from Department of Economics, Simon Fraser University
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
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Persistent link: https://EconPapers.repec.org/RePEc:sfu:sfudps:dp97-08
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