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Why Industrial Policies Fail: Limited Commitment

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  • Karp, Larry
  • Perloff, Jeffrey

Abstract

Government policies designed to give domestic exporters a strategic advantage in world markets are completely effective only if the government can commit to those policies for as long as they affect firms' decisions. Export subsidies or other output policies that affect firms only in the current period could, it is true, be used strategically without long-term commitments, but international agreements or fears of retaliation limit their use. The shorter the period of a government's commitment to an investment or industrial policy that affects firms over many periods, the less its strategic value, because the government loses the "first mover" advantage it would have in a one-period market.

Suggested Citation

  • Karp, Larry & Perloff, Jeffrey, 1990. "Why Industrial Policies Fail: Limited Commitment," CEPR Discussion Papers 450, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:450
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    Cited by:

    1. Henisz, Witold J. & Zelner, Bennet A., 2006. "Interest Groups, Veto Points, and Electricity Infrastructure Deployment," International Organization, Cambridge University Press, vol. 60(1), pages 263-286, January.
    2. Stiegert, Kyle W. & Wang, Shinn-Shyr, 2003. "Imperfect Competition And Strategic Trade Theory: What Have We Learned," Working Papers 14589, International Agricultural Trade Research Consortium.
    3. Bletschacher, Georg, 1991. "Ansätze strategischer Handels- und Industriepolitik: Ein Überblick," Kiel Working Papers 487, Kiel Institute for the World Economy (IfW Kiel).
    4. Gervais, Jean-Philippe & Lapan, Harvey E., 2002. "Time consistent export quotas in an oligopolistic world market," Journal of International Economics, Elsevier, vol. 56(2), pages 445-463, March.
    5. Gervais, Jean-Philippe, 1999. "Optimal trade policy, time consistency and uncertainty in an oligopsonistic world market," ISU General Staff Papers 1999010108000013564, Iowa State University, Department of Economics.
    6. Hamilton, Stephen F. & Stiegert, Kyle W., 2002. "An empirical test of the rent-shifting hypothesis: the case of state trading enterprises," Journal of International Economics, Elsevier, vol. 58(1), pages 135-157, October.
    7. Bletschacher, Georg & Klodt, Henning, 1991. "Braucht Europa eine neue Industriepolitik?," Kiel Discussion Papers 177, Kiel Institute for the World Economy (IfW Kiel).
    8. Reimer, Jeffrey J. & Stiegert, Kyle W., 2006. "Evidence on Imperfect Competition and Strategic Trade Theory," Staff Paper Series 498, University of Wisconsin, Agricultural and Applied Economics.
    9. Donald Hay, 2015. "Industrial Policy in Brazil: a Framework," Discussion Papers 0074, Instituto de Pesquisa Econômica Aplicada - IPEA.
    10. Sonali Deraniyagala & Ben Fine, 2000. "New Trade Theory Versus Old Trade Policy: A Continuing Enigma," Working Papers 102, Department of Economics, SOAS University of London, UK.

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    More about this item

    Keywords

    Commercial Policy; Exports; Industrial Policy; Subsidies; Trade Agreements;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

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