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A Rationale for the WTO Prohibition of Export Subsidies: Strategic Export Subsidies and World Welfare

  • David Collie


This article presents a model that provides an economic rationale for multilateral agreements, such as the WTO, that prohibit export subsidies. The model is a multicountry version of the well-known Brander and Spencer (Journal of International Economics (1985) 18, 83–100) analysis of profit-shifting export subsidies, with the addition of an opportunity cost of government revenue greater than unity, as in Neary (Journal of International Economics (1994) 37, 197–218) to capture the fact that the export subsidy will typically be funded by distortionary taxation. It explains the unilateral incentive for welfare-maximizing governments to provide export subsidies and shows how the multilateral prohibition of export subsidies may increase world welfare. Copyright Kluwer Academic Publishers 2000

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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 11 (2000)
Issue (Month): 3 (July)
Pages: 229-245

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Handle: RePEc:kap:openec:v:11:y:2000:i:3:p:229-245
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  1. Collie, David & De Meza, David, 1986. "Inadequacies of the strategic rationale of export subsidies," Economics Letters, Elsevier, vol. 22(4), pages 369-373.
  2. repec:att:wimass:9605 is not listed on IDEAS
  3. 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.
  4. 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.
  5. Bagwell, Kyle & Staiger, Robert W., 1997. "Strategic export subsidies and reciprocal trade agreements: The natural monopoly case," Japan and the World Economy, Elsevier, vol. 9(4), pages 491-510, December.
  6. Neary, James Peter, 1991. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Discussion Papers, Series II 147, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  7. Collie, David R., 2000. "State aid in the European Union: The prohibition of subsidies in an integrated market," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 867-884, August.
  8. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  9. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  10. Collie, David R, 1997. "Bilateralism Is Good: Trade Blocs and Strategic Export Subsidies," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 504-20, October.
  11. Jeffrey J. Schott, 1994. "Uruguay Round: An Assessment," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 64.
  12. Collie, David, 1993. "Profit-Shifting Export Subsidies and the Sustainability of Free Trade," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(4), pages 408-19, November.
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