Strategic export subsidies and reciprocal trade agreements: The natural monopoly case |
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Authors: | Kyle Bagwell Robert W. Staiger |
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Affiliation: | aDepartment of Economics, Columbia University, 420 W. 118th Street, New York 10027, USA;bDepartment of Economics, The University of Wisconsin-Madison and NBER, 1180 Observatory Drive, Madison, Wisconsin 53706, USA |
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Abstract: | Why do governments seek restrictions on the use of export subsidies through reciprocal trade agreements such as GATT? In this paper, we emphasize that subsidy competition between governments can serve to coordinate the entry decisions of firms, finding that consumers in the importing countries may suffer if the coordination afforded exporters by government subsidy programs does more to prevent entry than to promote it. In such circumstances, we show that the existence of export subsidy programs can lead to inefficiencies, and importing countries and the world as a whole can be better off when such programs are banned. |
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Keywords: | Strategic trade Export subsidies GATT |
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