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A Rationale for the WTO Prohibition of Export Subsidies: Strategic Export Subsidies and World Welfare

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  • David Collie

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Abstract

This article presents a model that provides an economic rationale for multilateral agreements, such as the WTO, that prohibit export subsidies. The model is a multicountry version of the well-known Brander and Spencer (Journal of International Economics (1985) 18, 83–100) analysis of profit-shifting export subsidies, with the addition of an opportunity cost of government revenue greater than unity, as in Neary (Journal of International Economics (1994) 37, 197–218) to capture the fact that the export subsidy will typically be funded by distortionary taxation. It explains the unilateral incentive for welfare-maximizing governments to provide export subsidies and shows how the multilateral prohibition of export subsidies may increase world welfare. Copyright Kluwer Academic Publishers 2000

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File URL: http://hdl.handle.net/10.1023/A:1008322823299
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 11 (2000)
Issue (Month): 3 (July)
Pages: 229-245

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Handle: RePEc:kap:openec:v:11:y:2000:i:3:p:229-245

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: multilateral agreements; export subsidies; strategic trade policy;

References

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  1. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  2. Bagwell, Kyle & Staiger, Robert W., 1997. "Strategic export subsidies and reciprocal trade agreements: The natural monopoly case," Japan and the World Economy, Elsevier, vol. 9(4), pages 491-510, December.
  3. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  4. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  5. Collie, David R, 1997. "Bilateralism Is Good: Trade Blocs and Strategic Export Subsidies," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 504-20, October.
  6. Jeffrey J. Schott, 1994. "Uruguay Round: An Assessment," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 64.
  7. Collie, David & De Meza, David, 1986. "Inadequacies of the strategic rationale of export subsidies," Economics Letters, Elsevier, vol. 22(4), pages 369-373.
  8. Collie, David, 1993. "Profit-Shifting Export Subsidies and the Sustainability of Free Trade," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(4), pages 408-19, November.
  9. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November.
  10. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  11. Collie, David R., 2000. "State aid in the European Union: The prohibition of subsidies in an integrated market," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 867-884, August.
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