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Profit-Shifting Export Subsidies and the Sustainability of Free Trade

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  • Collie, David

Abstract

This paper analyzes trade wars and the sustainability of free trade in the J. A. Brander and B. J. Spencer (1985) model of profit-shifting export subsidies. It is shown that both countries will usually be worse-off if there is a trade war than under free trade but that one country may be better-off if its firm is very competitive. In an infinitely repeated version of the Brander-Spencer game, it is shown that free trade is sustainable as a perfect equilibrium if the two countries are sufficiently similar and the discount factor is sufficiently large. Copyright 1993 by Scottish Economic Society.

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Bibliographic Info

Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 40 (1993)
Issue (Month): 4 (November)
Pages: 408-19

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Handle: RePEc:bla:scotjp:v:40:y:1993:i:4:p:408-19

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Cited by:
  1. David Collie, 2000. "A Rationale for the WTO Prohibition of Export Subsidies: Strategic Export Subsidies and World Welfare," Open Economies Review, Springer, vol. 11(3), pages 229-245, July.
  2. Praveen Kujal & Juan Ruiz, 2003. "Policy Synchronization and Staggering in a Dynamic Model of Strategic Trade," International Trade 0302003, EconWPA.
  3. Conconi, P., 2000. "Trade Bloc Formation Under Imperfect Competition," The Warwick Economics Research Paper Series (TWERPS) 571, University of Warwick, Department of Economics.
  4. Soegaard, Christian, 2013. "An Oligopolistic Theory of Regional Trade Agreements," The Warwick Economics Research Paper Series (TWERPS) 1007, University of Warwick, Department of Economics.

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