Export - Investment Subsidies in the Presence of Import Protection
نویسندگان
چکیده
In this paper, we investigate endogenous foreign direct investment incentives in an export sector when the tari is exogenously given. Using a cost-bene t rule to determine exportinvestment incentives, authorities are shown to set subsidies which neutralize the e ects of tari s 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. It is also shown that, even if export capacity increases with export activism, welfare may still fall. Printed on September 24, 1997
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