2011/02/01 by Federico Etro
Economics, Econometrics and Finance · #Commercial policy #Competition (biology) #Economic Growth and Productivity #Economics #Export subsidy #Fiscal Policy and Economic Growth #Global trade and economics #International economics #International trade #Market economy #Microeconomics #Price elasticity of demand #Subsidy
paper · doi:10.1111/j.1468-2354.2010.00619.x
openalex publication_date 2011/02/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/22
I characterize the optimal export promoting policy for international markets whose structure is endogenous. Contrary to the ambiguous results of strategic trade policy for duopolies, it is always optimal to subsidize exports when entry is endogenous, under both quantity and price competition. With homogenous goods the optimal export subsidy is a fraction 1/ε of the price, where ε is the elasticity of demand (the exact opposite of the optimal export tax in the neoclassical trade theory). Analogously, I show the general optimality of R&D subsidies and of competitive devaluations to promote exports in foreign markets where entry is endogenous.