Does protection harden budget constraints?
AbstractIn this paper we analyse the effects of soft budget constraints in an international context. Firstly, we show that soft budget constraints in an exporting country lead to higher levels of trade protection in the recipient country. Secondly, the model predicts that protectionist trade policy helps to harden budget softness in the exporting country. We therefore argue that, when industrial policy fails to enforce financial discipline, trade policy can take over this role. Finally, we discuss potential implications of our model for EU-policy with respect to Central and Eastern European Countries.
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Bibliographic InfoPaper provided by Katholieke Universiteit Leuven in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/118264.
Date of creation: 2001
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Web page: http://www.kuleuven.be
Effects; International; Trade; Model; Trade policy; Implications;
Other versions of this item:
- Greetje Everaert & Hylke Vandenbussche, 2001. "Does Protection Harden Budget Constraints?," LICOS Discussion Papers 9801, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
- Everaert, G & Vandenbussche, Hylke, 2001. "Does protection harden budget constraints ?," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/223952, Katholieke Universiteit Leuven.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
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