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Journal of Economic Integration 2008 June;23(2) :346-359.
DOI: https://doi.org/10.11130/jei.2008.23.2.346
Globally Optimal R&D Subsidy Policy: an Economist's View on the WTO Subsidy Agreement
Moonsung Kang 
Korea University
Copyright ©2008 Journal of Economic Integration
ABSTRACT

We provide economic backgrounds to the Agreement on Subsidies and Countervailing Measures under the World Trade Organization. Permitting R&D subsidy under Article 8 of the Agreement can be interpreted as an inefficient victory of an individual exporting country in the non-cooperative game, harnessing strategic relationship over a foreign rival firm into its domestic industrial policy. In addition, we show that the expiration of Article 8 can be understood as a result of the global optimum, where we maximize the sum of welfares over exporting and importing countries in the symmetric case with a linear demand.

JEL classification: F10, F13

Keywords: Strategic Trade Policy | R&D subsidies | WTO
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