Citation

Discussion Paper Details

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Title: Robust Rules for Industrial Policy in Open Economies

Author(s): Dermot Leahy and J Peter Neary

Publication Date: March 2001

Keyword(s): Cost-Reducing Investment, Export Subsidies, Market-Expanding Investment, R&D Subsidies, Strategic Industrial Policy and Strategic Trade Policy

Programme Area(s): International Trade and Regional Economics

Abstract: The theory of strategic trade policy yields ambiguous recommendations for assistance to exporting firms in oligopolistic industries. Some writers have, however, suggested that investment subsidies are a more robust recommendation than export subsidies. We show that, though ambiguous in principle, the case for investment subsidies is reasonably robust in practice. Except when functional forms exhibit arbitrary non-linearities, it holds under both Cournot and Bertrand competition, with either cost-reducing or market-expanding investment, and with or without spillovers. Only if firms have strong asymmetries in their investment behaviour and engage in Bertrand competition is an investment tax clearly justified.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2731

Bibliographic Reference

Leahy, D and Neary, J. 2001. 'Robust Rules for Industrial Policy in Open Economies'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2731