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A welfare-theoretic argument for regional subsidization of industry in the presence of inferior technology

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  • Mark Herander

Abstract

This paper develops a welfare-theoretic argument for regional policy makers to subsidize an industry that has access to superior production technology in another region. The analytical framework is based on a standard general equilibrium model where two regions operating within a federal system are connected by goods trade and capital mobility. Optimal regional policy is designed to improve the capital terms of trade and depends on regional production patterns. Only when the technologically deficient region is diversified in production will optimal policy involve subsidization of an industry that has access to superior technology in another region. Copyright Kluwer Academic Publishers 1995

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  • Mark Herander, 1995. "A welfare-theoretic argument for regional subsidization of industry in the presence of inferior technology," Open Economies Review, Springer, vol. 6(3), pages 255-263, July.
    • Handle: RePEc:kap:openec:v:6:y:1995:i:3:p:255-263
    DOI: 10.1007/BF01000084
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    References listed on IDEAS

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    1. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
    2. James R. MARKUSEN, 2021. "Factor Movements And Commodity Trade As Complements," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 15, pages 325-340, World Scientific Publishing Co. Pte. Ltd..
    3. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    4. Wildasin, David E. & Douglas Wilson, John, 1991. "Theoretical issues in local public economics : An overview," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 317-331, November.
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    6. Brecher, Richard A. & Feenstra, Robert C., 1983. "International trade and capital mobility between diversified economies," Journal of International Economics, Elsevier, vol. 14(3-4), pages 321-339, May.
    7. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
    8. Wilson, John D., 1985. "Optimal property taxation in the presence of interregional capital mobility," Journal of Urban Economics, Elsevier, vol. 18(1), pages 73-89, July.
    9. Luger, Michael I. & Evans, William N., 1988. "Geographic differences in production technology," Regional Science and Urban Economics, Elsevier, vol. 18(3), pages 399-424, August.
    10. Wilson, John Douglas, 1991. "Optimal Public Good Provision with Limited Lump-Sum Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 153-166, March.
    11. Herander, Mark G., 1992. "The regional consequences of international trade with interregional capital mobility," Journal of International Economics, Elsevier, vol. 33(3-4), pages 373-381, November.
    12. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
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    Cited by:

    1. Margrethe Aanesen, 2012. "Sequential bargaining, external effects of agreement, and public intervention," Journal of Economics, Springer, vol. 105(2), pages 145-160, March.

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