Template-type: ReDIF-Paper 1.0
Author-Name: Philip U. Sauré
Author-Name-First: Philip U.
Author-Name-Last: Sauré
Author-Person: psa635
Title: How to Use Industrial Policy to Sustain Trade Agreements
Abstract: With the help of a simple Ricardian model, this paper explores the role of industrial policy in self-enforcing trade agreements. A first part shows that the optimal self-enforcing trade agreement includes subsidies to inefficient, import-competing sectors. Second, when by some exogenous or endogenous force the comparative advantage deepens, subsidies go to declining industries. Key assumptions driving these results are: essentiality of imported goods and a high flexibility of the countries' industrial structure. A final part relaxes the latter assumption and shows that under rigid industrial structures subsidies favoring import competing sectors actually destabilize trade agreements.
Length: 39 pages
Creation-Date: 2008
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2008/working_paper_2008_12
File-Format: text/html
Number: 2008-12
Classification-JEL: F10, F13
Keywords: Trade Agreement, Self-enforceability, Industrial Policy
Handle: RePEc:snb:snbwpa:2008-12