Industrial Policy as Strategic Trade Policy in a Global Economy

Authors

David DeCarlo, Yale University

Abstract

With the introduction of “strategic trade policy” in the 1980’s came two separate theoretical justifications for increased government intervention to promote national industries: first, argued by Brander and Spencer (1985), the government could alter the strategic interaction in oligopolistic competition to shift profits to a domestic firm; second, the government could promote key industries in order to capture the benefits of positive externalities, such as knowledge spillovers. But the creation of the WTO and the regulation of export subsidies soon limited the strategic trade policy options available to governments. This paper examines the case for providing R&D and capital subsidies to domestic firms as a kind of strategic trade policy in the increasingly global economy of the 21st century.

Recommended Citation

DeCarlo, David (2007) "Industrial Policy as Strategic Trade Policy in a Global Economy," Undergraduate Economic Review: Vol. 3: Iss. 1, Article 9.
Available at: https://digitalcommons.iwu.edu/uer/vol3/iss1/9