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Technological linkages, market structure, and production policies

In: International Economic Integration and Domestic Performance

Author

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  • Douglas Holtz-Eakin
  • Mary E. Lovel

Abstract

Proponents of industrial policy argue that key industries merit subsidies because they generate beneficial externalities. We show that policy must reflect both technological linkages and market power in the target industries, the interaction of which may produce an optimal policy including both subsidies and taxes on target industries. The optimal policy combination may not be politically or administratively feasible. If so, we show that it may not be desirable to subsidize output in the externality-generating activity on either a fixed or per-unit basis. Thus, technological linkages alone do not lead to the presumption that the externality-generating activity should be subsidized.

Suggested Citation

  • Douglas Holtz-Eakin & Mary E. Lovel, 2017. "Technological linkages, market structure, and production policies," World Scientific Book Chapters, in: Mary E Lovely (ed.), International Economic Integration and Domestic Performance, chapter 4, pages 59-72, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813141094_0004
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    More about this item

    Keywords

    International Trade; Foreign Direct Investment; Environmental Standards; Labor Standards;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration

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