Selection, Trade and Employment: The Strategic Use of Subsidies

Hassan Molana, Catia Montagna

Research output: Working paperDiscussion paper


We study how the interaction between economic openness and competitive
selection affects the effectiveness of employment and entry subsidisation. Within a heterogeneous-firms model with endogenous labour supply, optimal
employment subsidies are shown to have pro- or anti-competitive effects on industry selection depending on whether the economy is open or not. Selection effects resulting from international competition and fiscal externalities imply that non-cooperative policies may entail under-subsidisation of employment. Entry subsidies always have pro-competitive selection effects on the industry, but are shown to be less effective in raising employment and welfare than employment subsidies.
Original languageEnglish
Place of PublicationDundee
PublisherUniversity of Dundee
Number of pages37
Publication statusPublished - 10 Oct 2016

Publication series

PublisherUniversity of Dundee
ISSN (Electronic)1473-236X


  • optimal policy
  • employment subsidies
  • competitive selection
  • international trade


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