How to Use Industrial Policy to Sustain Trade Agreements
With the help of a simple Ricardian model, this paper explores the role of industrial policy in self-enforcing trade agreements. A first part shows that the optimal self-enforcing trade agreement includes subsidies to inefficient, import-competing sectors. Second, when by some exogenous or endogenous force the comparative advantage deepens, subsidies go to declining industries. Key assumptions driving these results are: essentiality of imported goods and a high flexibility of the countries' industrial structure. A final part relaxes the latter assumption and shows that under rigid industrial structures subsidies favoring import competing sectors actually destabilize trade agreements.
|Date of creation:||2008|
|Contact details of provider:|| Postal: Börsenstrasse 15, P. O. Box, CH - 8022 Zürich|
Phone: +41 58 631 31 11
Fax: +41 58 631 39 11
Web page: https://www.snb.ch/en/ifor/research/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:snb:snbwpa:2008-12. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Enzo Rossi)
If references are entirely missing, you can add them using this form.