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Learning‐by‐Doing and Strategic Trade Policy
Author(s) -
Benchekroun Hassan,
Long Ngo Van,
Tian Huilan
Publication year - 1999
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00177
Subject(s) - sophistication , rivalry , subsidy , economics , production (economics) , microeconomics , strategic complements , industrial organization , international economics , international trade , market economy , social science , sociology
The paper models international rivalry between a domestic firm that is going through a learning‐by‐doing phase, and a mature foreign rival. It is shown that the optimal production subsidy for the domestic firm depends on the degree of strategic sophistication of the foreign firm. Optimal production subsidy rules are derived under various scenarios. They are shown to be very sensitive to the specification of the game between the domestic and the foreign firms. Whether the optimal subsidy should decrease over time depends on the strategic sophistication of the foreign firm.