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Robust Rules for Industrial Policy in open Economies

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Author Info
Dermot Leahy (University College Dublin)
J. Peter Neary (University College Dublin)

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Abstract

The theory of strategic trade policy yields ambiguous recommendations for assistance to exporting firms in oligopolistic industries. However, some writers have suggested that investment subsidies are a more robust recommendation than export subsidies. We show that, though ambiguous in principle, the case for investment subsidies is reasonably robust in practice. Except when functional forms exhibit arbitrary non-linearities, it holds under both Cournot and Bertrand competition, with either cost-reducing or market-expanding investment, and with or without spillovers. Only if firms have strong asymmetries in their investment behaviour and engage in Bertrand competition is an investment tax clearly justified.

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File URL: http://www.ucd.ie/economics/research/papers/2000/WP00.21.pdf
File Format: application/pdf
File Function: First version, 2000
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Publisher Info
Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 200021.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 23 pages
Date of creation: 27 Jun 2000
Date of revision:
Handle: RePEc:ucn:wpaper:200021

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Postal: UCD, Belfield, Dublin 4
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Web page: http://www.ucd.ie/economics
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Related research
Keywords: cost-reducing investment; export subsidies; market-expanding investment; R&D subsidies; strategic industrial policy; strategic trade policy;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

References listed on IDEAS
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. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Leahy, Dermot & Neary, J Peter, 1996. "International R&D Rivalry and Industrial Strategy without Government Commitment," Review of International Economics, Blackwell Publishing, vol. 4(3), pages 322-38, October.
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  4. Spencer, Barbara J & Brander, James A, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Blackwell Publishing, vol. 50(4), pages 707-22, October. [Downloadable!] (restricted)
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  5. Henriques, Irene, 1990. "Cooperative and Noncooperative R&D in Duopoly with Spillovers: Comment," American Economic Review, American Economic Association, vol. 80(3), pages 638-40, June. [Downloadable!] (restricted)
  6. Grossman, Gene & Maggi, Giovanni, 1998. "Free Trade Vs. Strategic Trade: A Peek into Pandora's Box," CEPR Discussion Papers 1784, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. James A. Brander, 1995. "Strategic Trade Policy," NBER Working Papers 5020, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March. [Downloadable!] (restricted)
  9. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February. [Downloadable!] (restricted)
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  10. Bagwell, Kyle & Staiger, Robert W., 1994. "The sensitivity of strategic and corrective R&D policy in oligopolistic industries," Journal of International Economics, Elsevier, vol. 36(1-2), pages 133-150, February. [Downloadable!] (restricted)
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  11. Neary, J Peter & Leahy, Dermot, 2000. "Strategic Trade and Industrial Policy towards Dynamic Oligopolies," Economic Journal, Royal Economic Society, vol. 110(463), pages 484-508, April. [Downloadable!] (restricted)
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  12. Leahy, Dermot & Neary, J Peter, 1999. "Learning by Doing, Precommitment and Infant-Industry Promotion," Review of Economic Studies, Blackwell Publishing, vol. 66(2), pages 447-74, April. [Downloadable!] (restricted)
  13. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
  14. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May. [Downloadable!] (restricted)
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Cited by:
(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. McCorriston, Steve & Sheldon, Ian, 2004. "Tariff Escalation And The Developing Countries: How Can Market Access Be Improved In The Doha Round Of Trade Negotiations?," 2004 Annual meeting, August 1-4, Denver, CO 20156, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Haaland, Jan I. & Kind, Hans Jarle, 2004. "Cooperative and Non-Cooperative R&D Policy in an Economic Union," CEPR Discussion Papers 4185, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. J. Peter Neary, 2000. "Competition, Trade and Wages," Working Papers 200020, School Of Economics, University College Dublin. [Downloadable!]
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  4. Mihir A. Desai & James R. Hines Jr., 2004. "Market Reactions to Export Subsidies," NBER Working Papers 10233, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Dermot Leahy & J. Peter Neary, 2007. "Multilateral Subsidy Games," Economics Series Working Papers 346, University of Oxford, Department of Economics. [Downloadable!]
    Other versions:
  6. Juan Ruiz, 2004. "Cost effectiveness of R&D and the robustness of Strategic Trade Policy," Economics Discussion Papers 579, University of Essex, Department of Economics. [Downloadable!]
    Other versions:
  7. Steve Mccorriston & Ian Sheldon, 2005. "Export Competition and the Remission of Domestic Environmental Taxes," International Tax and Public Finance, Springer, vol. 12(5), pages 627-637, September. [Downloadable!] (restricted)
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