DP1606 International Leapfrogging and Subsidies

Author(s): Stefan Lutz
Publication Date: March 1997
Keyword(s): Country Asymmetries, Leapfrogging, Oligopoly, Quality, Trade, Vertical Product Differentiation
JEL(s): F12, F13, L13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1606

The recent extensive study of vertical product differentiation models has allowed for the analysis of international trade issues in the presence of country asymmetries in terms of product qualities, technology, costs, market size and income. In the presence of such asymmetries, national industries will either be market leaders or be lagging behind in the international marketplace in terms of their product qualities. The resulting asymmetry in profits creates powerful incentives for lagging industries as well as their national governments to reverse this situation to their advantage, i.e. to induce ?leapfrogging? in terms of product qualities. This paper presents an analysis of subsidies as a facilitating device for leapfrogging.