Saving, capital flows, and the symmetric international spillover of industrial policies

Abstract

This paper considers the effects of industrial policies in dynamic economy with international trade and monopolistic competition. Special attention is paid to saving, international capital flow, and welfare of all the trading economies. The effects of industrial policies in one country spill over to its trading partners through changes in terms of trade and productivity. Considering such effects, the paper shows that industrial policies in one country increase consumption and saving of all the trading countries. The effects on welfare of foreign coun¬tries are identical to those of domestic economy. If the movement of capital among countries is perfect, the movements of consumption over time of all countries also become identical.

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