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Optimal Commercial Policy with International Returns to Scale

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Author Info
Joseph F. Francois

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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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Publisher 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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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Carsten Eckel, 2003. "Does globalization lead to specialization?," Center for European, Governance and Economic Development Research (cege) Discussion Papers 20, Center for European, Governance and Economic Development Research, University of Goettingen (Germany).. [Downloadable!]
  2. Joseph F. Francois & Douglas Nelson, 2002. "A Geometry Of Specialisation," Economic Journal, Royal Economic Society, vol. 112(481), pages 649-678, July. [Downloadable!] (restricted)
    Other versions:
  3. Joseph F. Francois, 1993. "Explaining The Pattern Of Trade In Producer Services," International Economic Journal, Korean International Economic Association, vol. 7(3), pages 23-31, October. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
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