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Optimal Commercial Policy with International Returns to Scale

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  • Joseph F. Francois

Abstract

This paper examines the implications of international returns to scale and globalization of production for commercial policy. Though national returns justify subsidization for small countries, the first-best policy for small countries acting on their own under international returns is free trade. However, a coalition of such small countries can justify an active, interventionist commercial policy, even when it is unable to manipulate world prices. In general, optimal subsidy rates for increasing returns sectors are greater for a coalition than for its members when acting on their own when terms-of-trade effects are controlled for.

Suggested Citation

  • Joseph F. Francois, 1992. "Optimal Commercial Policy with International Returns to Scale," Canadian Journal of Economics, Canadian Economics Association, vol. 25(1), pages 184-195, February.
    • Handle: RePEc:cje:issued:v:25:y:1992:i:1:p:184-95
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    Cited by:

    1. Joseph F. Francois & Douglas Nelson, 2002. "A Geometry Of Specialisation," Economic Journal, Royal Economic Society, vol. 112(481), pages 649-678, July.
    2. Joseph E. Stiglitz, 1997. "Dumping on Free Trade: The U.S. Import Trade Laws," Southern Economic Journal, John Wiley & Sons, vol. 64(2), pages 402-424, October.
    3. Sajid Anwar, 2001. "Commercial policy and international factor mobility in the presence of monopolistic competition," Journal of Economics, Springer, vol. 74(3), pages 259-281, October.
    4. Eckel, Carsten, 2008. "Globalization and specialization," Journal of International Economics, Elsevier, vol. 75(1), pages 219-228, May.
    5. Douglas Holtz-Eakin & Mary E. Lovely, 1994. "Technological Linkages, Market Structure, and Optimum Production Policies," NBER Working Papers 4779, National Bureau of Economic Research, Inc.
    6. Nobuhito Suga, 2005. "International Economies of Scale and the Gains from Trade," Journal of Economics, Springer, vol. 85(1), pages 73-97, July.
    7. Anwar, Sajid, 2001. "Government spending on public infrastructure, prices, production and international trade," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(1), pages 19-31.
    8. repec:got:cegedp:20 is not listed on IDEAS
    9. Eckel, Carsten, 2003. "Does globalization lead to specialization?," University of Göttingen Working Papers in Economics 20, University of Goettingen, Department of Economics.

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