F12 - Models of Trade with Imperfect Competition and Scale Economies; FragmentationReturn

In this paper we analysed to which extent the changes in market potentials in Poland have been a cause for increasing income disparities, which were observed across Polish regions from 1995 to 2008. To do so we derived and estimated a New Economy Geography Model, which relates per capita GDP growth rates to changes in market potential. The results of the crosssection estimations of the model for the period 1995-2008 and for its different subsamples point to a positive and significant effect of changing market potentials in per capita GDP growth rates. Due to the fact that core-economic regions have mostly benefited in terms of market potential growth during 1995-2008, these results confirm the important role played by the relative changing in market potentials across Polish regions in widening the gap between poor and rich regions in the country in the period of analysis.

Conventional wisdom believes that voluntary export restraints (VERs) are beneficial for the exporting country but detrimental to the importing country. Based on the benchmark model of Obstfeld and Rogoff, this paper aims to examine this belief and evaluate the welfare effects of VERs on the world economy. Analytical results find that VERs exert expansion effects on the exporting economy temporarily. The conventional view of VERs effects holds only when there is perfect competition on the goods market or when the exporting country is bigger than the importing country. On the whole, VERs deteriorate the overall welfare of the world economy.

This paper examines the microeconomic motivation of governments to provide tax incentives for foreign direct investment. Author applies the classical models of oligopoly to subsidy competition, endogenousing investment incentives, but leaving tax rates exogenous. According to the conventional wisdom, subsidy competition leads to overprovision of incentives. This paper suggests that, in the oligopolistic framework, supranational coordination can either decrease or increase the supply of subsidies. Further, in the setting of subsidy regulation, the host country's corporate income tax rate has an ambiguous effect on the provision of incentives.