Export-Investment Subsidies in the Presence of Import Protection
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.
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|Date of creation:||1997|
|Contact details of provider:|| Postal: Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada|
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