TY  - JOUR
AU  - Dixit,Avinash K.
AU  - Grossman,Gene M.
TI  - Targeted Export Promotion with Several Oligopolistic Industries
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1344
PY  - 1987
Y2  - April 1987
UR  - http://www.nber.org/papers/w1344
L1  - http://www.nber.org/papers/w1344.pdf
N1  - Author contact info:
Avinash Dixit
Department of Economics
Princeton University
Princeton, NJ  08544-1017
E-Mail: dixitak@princeton.edu

Gene M. Grossman
International Economics Section
Department of Economics
Princeton University
Princeton, NJ 08544
Tel: 609/258-4823
Fax: 609/258-1374
E-Mail: grossman@princeton.edu
AB  - In this paper we ask whether a policy of targeted export promotion can raise domestic welfare when several oligopolistic industries all draw on the same scarce factor of production. Our point of departure is one of Cournot duopoly in which a single home firm competes with a single foreign firm in a market outside the horse country. It has been shown previously that when there is only one such industry in an otherwise perfectly competitive world economy, a subsidy policy by the home government transfers profits to the domestic firm, and thereby raises domestic welfare. However,when many such industries (and only these) utilize the same inelastically supplied resource, promotion of one bids up the return to the specific factor, and consequently disadvantages all of the non-targeted industries in their respective duopolistic competitions. Our question then is which industry(s), if any, is worthy of promotion. We find that, when the specific factor is used in fixed proportion to output, and all of the duopolies have similar demand and cost conditions, a policy of free trade is optimal. We identify the conditions for welfare improvement when a single industry is selected for targeting under asymmetric conditions, and also investigate whether a uniform subsidy to all industries in the imperfectly competitive sector will raise domestic welfare.
ER  -