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Export Subsidies and Least Developed Countries: An Entry-Deterrence Model under Complete and Incomplete Information

Author

Listed:
  • Kyoungwon Rhee

    (Dongguk University)

  • Moonsung Kang

    (Korea University)

Abstract

To explore the export subsidy policies in technologically inferior countries, we consider an entry-deterrence model in which firms compete á la Bertrand if entry occurs. Under complete information, only a subsidy policy can deter entry. We also check whether a “no subsidy” policy can deter entry under incomplete information, in which the existence of an export subsidy policy is assumed to be unknown to the foreign firm. In the separating equilibria, it is optimal for the government not to provide export subsidies because they are financially burdensome given the technological inferiority of the domestic firm being subsidized. However, in the pooling equilibria, under certain conditions, even the firm that does not benefit from a subsidy policy can deter the entry of a more technologically advanced firm, thereby granting an incentive for the government to employ a policy of strategic ambiguity in order to prevent the disclosure of information about its export subsidies.

Suggested Citation

  • Kyoungwon Rhee & Moonsung Kang, 2019. "Export Subsidies and Least Developed Countries: An Entry-Deterrence Model under Complete and Incomplete Information," Korean Economic Review, Korean Economic Association, vol. 35, pages 163-182.
  • Handle: RePEc:kea:keappr:ker-20190101-35-1-06
    as

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    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    2. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    3. Bagwell, K. & Staiger, R.W., 1996. "Reciprocal Trade Liberalization," Working papers 9602, Wisconsin Madison - Social Systems.
    4. Etro Federico, 2010. "Endogenous Market Structures and International Trade," Working Papers 2010_26, Department of Economics, University of Venice "Ca' Foscari".
    5. Moore, Michael O. & Suranovic, Steven M., 1993. "Lobbying and Cournot-Nash competition : Implications for strategic trade policy," Journal of International Economics, Elsevier, vol. 35(3-4), pages 367-376, November.
    6. Maggi, Giovanni, 1999. "Strategic Trade Policy under Incomplete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 571-594, August.
    7. Moonsung Kang, 2006. "Trade policy mix: IPR protection and R&D subsidies," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(3), pages 744-757, August.
    8. S. Lael Brainard & David Martimort, 1996. "Strategic Trade Policy Design with Asymmetric Information and Public Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(1), pages 81-105.
    9. repec:bla:scandj:v:95:y:1993:i:3:p:327-39 is not listed on IDEAS
    10. Moonsung Kang, 2006. "Trade policy mix: IPR protection and R&D subsidies," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 744-757, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Export Subsidies; Least Developed Countries; Entry-Deterrence Model; Strategic Trade Policy; Trade and Development;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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