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Bailout policy in a globalized economy

Author

Listed:
  • Nelly Exbrayat

    () (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)

  • Thierry Madiès

    () (Université de Fribourg, Faculté des sciences économiques et sociales - Albert-Ludwigs-Universität Freiburg)

  • Stéphane Riou

    () (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper explores how trade integration influences the decision by national governments to bailout manufacturing firms. We develop a 2-country model of generalized oligopoly with heterogenous firms and trade costs. High-cost firms are eligible for a bailout while low-cost firms are profitable. Our results show that trade liberalization influences both political benefits of a bailout and its relative cost as compared to a laissez-faire policy. If the fall in trade cost is so large that it allows high-cost firms to become exporters, governments might move away from a bailout policy to a laissez-faire policy. In contrast, a marginal decline in trade costs that does not affect the export status of high-cost firms, always makes governments more prone to adopt a bailout decision.
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Suggested Citation

  • Nelly Exbrayat & Thierry Madiès & Stéphane Riou, 2014. "Bailout policy in a globalized economy," Post-Print halshs-01090726, HAL.
  • Handle: RePEc:hal:journl:halshs-01090726
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01090726
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    References listed on IDEAS

    as
    1. Rohan Chindooroy & Patrice Muller & Giovanni Notaro, 2007. "Company survival following rescue and restructuring State aid," European Journal of Law and Economics, Springer, vol. 24(2), pages 165-186, October.
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