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Rent-Shifting Export Subsidies with an Imported Intermediate Product

  • Jota Ishikawa
  • Barbara J. Spencer

This paper argues that export subsidies aimed at shifting rents from foreign to domestic producers of a final good may also serve to shift rents to foreign firms supplying an intermediate good, weakening the incentive for the subsidy. By contrast, assuming Cournot competition for both the final and intermediate goods, this second layer of rent-shifting between final and intermediate good firms can strengthen the argument for an export subsidy if intermediate good firms are domestic. The domestic welfare implications of alternative rent-shifting policies (a production subsidy and an import tariff) at the intermediate good stage are also considered.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5458.

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Date of creation: Feb 1996
Date of revision:
Publication status: published as Journal of International Economics, Vol. 48, no. 2 (August 1999): 199-232.
Handle: RePEc:nbr:nberwo:5458
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  1. Barbara J. Spencer & Ronald W. Jones, 1989. "Vertical Foreclosure and International Trade Policy," NBER Working Papers 2920, National Bureau of Economic Research, Inc.
  2. Krishna, Kala & Thursby, Marie, 1991. "Optimal policies with strategic distortions," Journal of International Economics, Elsevier, vol. 31(3-4), pages 291-308, November.
  3. Chang, Winston W & Chen, Fang-yueh, 1994. "Vertically Related Markets: Export Rivalry between DC and LDC Firms," Review of International Economics, Wiley Blackwell, vol. 2(2), pages 131-42, June.
  4. Spencer, Barbara J. & Jones, Ronald W., 1992. "Trade and protection in vertically related markets," Journal of International Economics, Elsevier, vol. 32(1-2), pages 31-55, February.
  5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, March.
  6. Bernhofen, Daniel M, 1997. "Strategic Trade Policy in a Vertically Related Industry," Review of International Economics, Wiley Blackwell, vol. 5(3), pages 429-33, August.
  7. Seade, J, 1985. "Profitable Cost Increases and the Shifting of Taxation : Equilibrium Response of Markets in Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 260, University of Warwick, Department of Economics.
  8. Spencer, Barbara J & Raubitschek, Ruth S, 1996. "High-Cost Domestic Joint Ventures and International Competition: Do Domestic Firms Gain?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 315-40, May.
  9. Ishikawa, Jota & Lee, Ki-Dong, 1997. "Backfiring tariffs in vertically related markets," Journal of International Economics, Elsevier, vol. 42(3-4), pages 395-423, May.
  10. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November.
  11. James A. Brander & Barbara J. Spencer, 1983. "Trade Warfare: Tariffs and Cartels," NBER Working Papers 1193, National Bureau of Economic Research, Inc.
  12. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
  13. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  14. Dani Rodrik & Chang-Ho Yoon, 1989. "Strategic Trade Policy When Domestic Firms Compete Against Vertically Integrated Rivals," NBER Working Papers 2916, National Bureau of Economic Research, Inc.
  15. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  16. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March.
  17. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
  18. Seade, Jesus, 1980. "The stability of cournot revisited," Journal of Economic Theory, Elsevier, vol. 23(1), pages 15-27, August.
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