Can Subsidies for MARs be Procompetitive?
Kala Krishna, Suddhasatwa Roy, Marie C. Thursby
NBER Working Paper No. 7624
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.
Published: Canadian Journal of Economics, Volume: 34 Issue: 1 (February 2001) Pages: 212-224