Journal Article Policy Targeting with Endogenous Distortions: Theory of Optimum Subsidy Revisited Get access Dani Rodrik Dani Rodrik Harvard University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 102, Issue 4, November 1987, Pages 903–911, https://doi.org/10.2307/1884288 Published: 01 November 1987

This paper analyzes the resource-allocation and welfare effects of export-performance requirements imposed on foreign investors. It argues that a satisfactory analysis must consider the presence of tariff distortions and oligopolistic behavior in host-country markets. These create a second-best environment in which an evaluation of the welfare effects of such requirements is no longer straightforward. It is concluded that export requirements can improve home welfare by reducing payments to foreign capital, reducing the output of commodities which are being overproduced, and shifting profits toward domestically owned firms.