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Endogenous Export Subsidies And Welfare Under Domestic Cost Heterogeneity

  • Subhayu Bandyopadhyay
  • Eun-Soo Park
  • Howard J. Wall

We present a model of international market share rivalry where the domestic export subsidy is determined by lobbying. Greater domestic cost heterogeneity leads to a higher subsidy level and a larger domestic market share. However, the relationship between cost heterogeneity and welfare is ambiguous. Starting from a near-symmetric situation, an increase in heterogeneity reduces domestic welfare if the number of domestic firms exceeds some critical value. When starting farther from symmetry, the welfare effect is reversed. Our findings are in contrast with the results from the existing literature where lobbying is ignored. Copyright Blackwell Publishing Ltd 2004.

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Article provided by Wiley Blackwell in its journal Economics & Politics.

Volume (Year): 16 (2004)
Issue (Month): (November)
Pages: 347-366

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Handle: RePEc:bla:ecopol:v:16:y:2004:i::p:347-366
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  1. Ngo, Van Long & Soubeyran, Antoine, 1997. "Cost heterogeneity, industry concentration and strategic trade policies," Journal of International Economics, Elsevier, vol. 43(1-2), pages 207-220, August.
  2. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 162, Princeton, Woodrow Wilson School - Public and International Affairs.
  3. Bergstrom, Theodore C & Varian, Hal R, 1985. "When Are Nash Equilibria Independent of the Distribution of Agents' Characteristics?," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 715-18, October.
  4. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  5. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
  6. Moore, Michael O. & Suranovic, Steven M., 1993. "Lobbying and Cournot-Nash competition : Implications for strategic trade policy," Journal of International Economics, Elsevier, vol. 35(3-4), pages 367-376, November.
  7. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-19, September.
  8. Panagariya, Arvind & Rodrik, Dani, 1993. "Political-Economy Arguments for a Uniform Tariff," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 685-703, August.
  9. Long, Ngo Van & Soubeyran, Antoine, 1996. "Lobbying for protection by heterogeneous firms," European Journal of Political Economy, Elsevier, vol. 12(1), pages 19-32, April.
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