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Learning By Doing And Strategic Trade Policy

Author

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  • Hassan Benchekroun
  • Ngo Van Long
  • Huilan Tian

Abstract

We model international rivalry between a domestic firm that is going through a leaming-by-doing phase, and a mature foreign rival. We show that the optimal production subsidy for the domestic firm depends on the degree of strategic sophistication of the foreign firm.Optimal production subsidy rules are derived under various scenarios. They are shown to be very sensitive to the specification of the game between the domestic and the foreign firms. The conduct of strategic trade policy thus requires that the home government be well informed about the degree of strategic sophistication of the foreign firm. In particular, we show that whether the government should help the domestic firm relatively more in its early infancy, with a subsidy that decreases as the firm grows, or it should promise a greater reward as the firm becomes more mature, depends on the strategic sophistication of the foreign firm.

Suggested Citation

  • Hassan Benchekroun & Ngo Van Long & Huilan Tian, 1998. "Learning By Doing And Strategic Trade Policy," Departmental Working Papers 1998-01, McGill University, Department of Economics.
    • Handle: RePEc:mcl:mclwop:1998-01
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    References listed on IDEAS

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    Cited by:

    1. Kenji Fujiwara & Ngo Long, 2011. "Welfare Implications of Leadership in a Resource Market under Bilateral Monopoly," Dynamic Games and Applications, Springer, vol. 1(4), pages 479-497, December.
    2. Kazuhiko Yokota & Akinori Tomohara, 2009. "Extending the Learning-By-Exporting Hypothesis: Introducing a Credit Constraint," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 15(2), pages 169-177, May.
    3. repec:kap:iaecre:v:15:y:2009:i:2:p:169-177 is not listed on IDEAS

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