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Optimal Commercial Policy with International Returns to Scale

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  • Joseph F. Francois

Abstract

This paper examines the implications of international returns to scale and globalization of production for commercial policy. Though national returns justify subsidization for small countries, the first-best policy for small countries acting on their own under international returns is free trade. However, a coalition of such small countries can justify an active, interventionist commercial policy, even when it is unable to manipulate world prices. In general, optimal subsidy rates for increasing returns sectors are greater for a coalition than for its members when acting on their own when terms-of-trade effects are controlled for.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 25 (1992)
Issue (Month): 1 (February)
Pages: 184-95

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Handle: RePEc:cje:issued:v:25:y:1992:i:1:p:184-95

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Citations

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Cited by:
  1. Eckel, Carsten, 2003. "Does globalization lead to specialization?," Center for European, Governance and Economic Development Research Discussion Papers 20, University of Goettingen, Department of Economics.
  2. Francois, Joseph & Nelson, Doug R, 1998. "A geometry of Specialization," CEPR Discussion Papers 1813, C.E.P.R. Discussion Papers.
  3. Eckel, Carsten, 2008. "Globalization and specialization," Munich Reprints in Economics 20533, University of Munich, Department of Economics.
  4. Anwar, Sajid, 2001. "Government spending on public infrastructure, prices, production and international trade," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(1), pages 19-31.
  5. Douglas Holtz-Eakin & Mary E. Lovely, 1994. "Technological Linkages, Market Structure, and Optimum Production Policies," NBER Working Papers 4779, National Bureau of Economic Research, Inc.
  6. Sajid Anwar, 2001. "Commercial policy and international factor mobility in the presence of monopolistic competition," Journal of Economics, Springer, vol. 74(3), pages 259-281, October.
  7. Eckel, Carsten, 2003. "Does globalization lead to specialization?," Center for European, Governance and Economic Development Research Discussion Papers 20, University of Goettingen, Department of Economics.
  8. Nobuhito Suga, 2005. "International Economies of Scale and the Gains from Trade," Journal of Economics, Springer, vol. 85(1), pages 73-97, 07.
  9. repec:dgr:uvatin:2098006 is not listed on IDEAS
  10. Joseph F. Francois & Douglas Nelson, 1998. "A Geometry of Specialization," Tinbergen Institute Discussion Papers 98-006/2, Tinbergen Institute.

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