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Does Protection Harden Budget Constraints?

Author

Listed:
  • Greetje Everaert
  • Hylke Vandenbussche

Abstract

In this paper we analyse the effects of soft budget constraints in an international context. Firstly, we show that soft budget constraints in an exporting country lead to higher levels of trade protection in the recipient country. Secondly, the model predicts that protectionist trade policy helps to harden budget softness in the exporting country. We therefore argue that, when industrial policy fails to enforce financial discipline, trade policy can take over this role. Finally, we discuss potential implications of our model for EU-policy with respect to Central and Eastern Countries.

Suggested Citation

  • Greetje Everaert & Hylke Vandenbussche, 2001. "Does Protection Harden Budget Constraints?," LICOS Discussion Papers 9801, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  • Handle: RePEc:lic:licosd:9801
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    File URL: http://www.econ.kuleuven.be/licos/publications/dp/dp98.pdf
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    Cited by:

    1. Everaert, Greetje M.M., 2004. "The political economy of restructuring and subsidisation : an international perspective," BOFIT Discussion Papers 12/2004, Bank of Finland, Institute for Economies in Transition.
    2. Xiang Liu & Hylke Vandenbussche, 2002. "EU Antidumping Cases against China: An Overview and Future Prospects with Respect to China's WTO Membership," LICOS Discussion Papers 11902, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    3. Greetje Everaert, 2003. "The Political Economy of Restructuring and Subsidisation: An International Perspective," LICOS Discussion Papers 13003, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

    More about this item

    Keywords

    Soft Budget Constraints; Transition; Trade Policy; Oligopoly;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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