Endogenous Export Subsidies and Welfare Under Domestic Cost Heterogeneity

20 Pages Posted: 3 Nov 2004

See all articles by Subhayu Bandyopadhyay

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Eun-Soo Park

Northwestern University - Department of Economics

Howard J. Wall

Lindenwood University - Center for Economics and the Environment

Abstract

We present a model of international market share rivalry where the domestic export subsidy is determined by lobbying. Greater domestic cost heterogeneity leads to a higher subsidy level and a larger domestic market share. However, the relationship between cost heterogeneity and welfare is ambiguous. Starting from a near-symmetric situation, an increase in heterogeneity reduces domestic welfare if the number of domestic firms exceeds some critical value. When starting farther from symmetry, the welfare effect is reversed. Our findings are in contrast with the results from the existing literature where lobbying is ignored.

Suggested Citation

Bandyopadhyay, Subhayu and Park, Eun-Soo and Wall, Howard J., Endogenous Export Subsidies and Welfare Under Domestic Cost Heterogeneity. Economics & Politics Vol. 16, No. 3, pp. 347-366, November 2004. Available at SSRN: https://ssrn.com/abstract=611188

Subhayu Bandyopadhyay (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

Eun-Soo Park

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

Howard J. Wall

Lindenwood University - Center for Economics and the Environment ( email )

209 S. Kingshighway
St. Charles, MO 63301
United States

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