This paper considers the effects of industrial policies in dynamic economy with international trade and monopolistic competitions. Special attention is paid to saving, international capital flow, and welfare of all the trading economies. The effects of industrial policies in one country spill over to its trading partners through changes in terms of trade and productivity. Considering such effects, the paper shows that industrial policies in one country increase consumption and saving of all the trading countries. The effects on welfare of foreign countries are identical to those of domestic economy. If the movement of capital among countries is perfect, the movements of consumption over time of all countries also become identical.
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Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number
2002-2.
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