Government policies in a granular global economy

https://doi.org/10.1016/j.jmoneco.2021.04.003Get rights and content
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Abstract

Using a granular model of international trade, we study the rationale and implications of various government interventions targeted at large individual firms. In antitrust regulation, governments face an incentive to be overly lenient towards domestic mergers in comparative advantage sectors. In trade policy, targeting individual foreign exporters rather than entire sectors minimizes the pass-through of import tariffs into domestic consumer prices, shifting the burden towards foreign producers. In industrial policy, subsidizing ‘national champions’ is generally suboptimal in closed economies as it leads to an excessive build-up of market power, yet it may become unilaterally welfare improving in open economies at the cost of the foreign consumers.

Keywords

Granular comparative advantage
Industrial policy
Trade policy
Antitrust

JEL classification

D43
F12
F13
L40
L52

Cited by (0)

We thank Ezra Oberfield for his insightful discussion, and participants at the Carnegie-Rochester-NYU Conference on Public Policy and the Virtual ITM seminar for helpful comments. Cecile Gaubert gratefully acknowledges financial support from the Clausen Center at UC Berkeley.