STRATEGIC EXPORT SUBSIDIES AND RECIPROCAL TRADE AGREEMENTS - THE NATURAL MONOPOLY CASE

Why do governments seek restrictions on the use of export subsidies th rough reciprocal trade agreements such as GATT? In this paper, we emph asize that subsidy competition between governments can serve to coordi nate the entry decisions of firms, finding that consumers in the impor ting countries may suffer if the coordination afforded exporters by go vernment subsidy programs does more to prevent entry than to promote i t, In such circumstances, we show that the existence of export subsidy programs can lead to inefficiencies, and importing countries and the world as a whole can be better off when such programs are banned. (C) 1997 Elsevier Science B.V.