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Journal of Economic Integration 2013 December;28(4) :649-666.
DOI: https://doi.org/10.11130/jei.2013.28.4.649
Integration Magnifies Locational Subsidy Effects and Cross-Border Ownership?
Wataru Johdo 
Tezukayama University, Nara, Japan
Corresponding Author: Wataru Johdo ,Tel: +81 742489380, Fax: +81 742464994, Email: johdo@tezukayama-u.ac.jp
Copyright ©2013 Journal of Economic Integration
ABSTRACT
This paper investigates the welfare effects of an increase in location subsidy by constructing a general equilibrium linear space model, including transport costs and the cross-border ownership of equities. We assume a market structure with monopolistic competition in which entry is restricted and where fixed costs are not necessary. These model characteristics allow us to obtain the analytical welfare effects that have yet to be examined. We find that the subsidy increase improves (reduces) the domestic (foreign) welfare, regardless of the size of transport costs. However, closer economic integration magnifies the impacts of the location subsidy.

JEL Classification
F15: Economic Integration
F20: General
H20: General
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
Keywords: Location Subsidy | Cross-border Ownership | Economic Integration | Welfare
 
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