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Export-Investment Subsidies in the Presence of Import Protection


  • Harris, R.G.
  • Schmitt, N.


In this paper, we investigate endogenous foreign direct investment incentives in an export sector when the tariff is exogenously given. Using a cost-benefit rule to determine export-investment incentives, authorities are shown to set subsidies which neutralize the effects of tariffs and which correspond to their welfare-maximizing level. Extending the model to two countries, we show that, depending on the level of protection, the strategic interaction between export authorities may result in an increase or a decrease in export capacity allocated to the low-wage country as compared to the outcome without export-investment subsidies.

Suggested Citation

  • Harris, R.G. & Schmitt, N., 1997. "Export-Investment Subsidies in the Presence of Import Protection," Discussion Papers dp97-08, Department of Economics, Simon Fraser University.
  • Handle: RePEc:sfu:sfudps:dp97-08

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements


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