Can Subsidies for MARs be Procompetitive?

Kala Krishna, Suddhasatwa Roy, Marie C. Thursby

NBER Working Paper No. 7624
Issued in March 2000
NBER Program(s):   ITI

In contrast to recent literature, we show that market access requirements (MARs) can be implemented in a procompetitive manner even in the absence of threats in related markets. By focusing on subsidies that are paid only when the requirement is met, we show that a MAR can increase aggregate output relative to free trade provided that the right set of firms is targeted. In the context of a model with multiple Japanese and US firms, we show that a MAR on US imports is procompetitive as long as the US firms are the ones targeted to receive the subsidy.

(232 K)

Published: Canadian Journal of Economics, Volume: 34 Issue: 1 (February 2001) Pages: 212-224

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