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Export Subsidies, Productivity and Welfare under Firm-Level Heterogeneity

Author

Listed:
  • Andres Rodriguez-Clare

    (University of Georgia)

  • Svetlana Demidova

    (Pennsylvania State University and NBER)

Abstract

In this paper we use the monopolistic competition model with heterogeneous firms to study the effect of different policies on productivity and welfare, and provide three particular policies, which allow to reach the first best allocation in the economy. We also show that an export subsidy generates an increase in productivity, but - if policy already deals with the mark-up distortion that arises in this context (for example, through a subsidy on consumption of domestic varieties) - its effect on welfare is negative due to combination of falling variety and adverse terms of trade changes.

Suggested Citation

  • Andres Rodriguez-Clare & Svetlana Demidova, 2007. "Export Subsidies, Productivity and Welfare under Firm-Level Heterogeneity," 2007 Meeting Papers 914, Society for Economic Dynamics.
    • Handle: RePEc:red:sed007:914
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    References listed on IDEAS

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    1. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 903-947.
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    Cited by:

    1. Chor, Davin, 2009. "Subsidies for FDI: Implications from a model with heterogeneous firms," Journal of International Economics, Elsevier, vol. 78(1), pages 113-125, June.

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