Optimal Trade, Industrial, and Public Policy Mix in Economic Unions with Eterogeneous Locations

24.02.2026 14:15 – 15:30

GENEVA TRADE AND DEVELOPMENT WORKSHOP

(Jointly with Alberto Palazzolo)

Abstract:

We study optimal policy design in a multi-sector, multi-location economy in which a union-level government simultaneously chooses tariffs, industrial subsidies, and public spending. We develop a tractable quantitative general equilibrium framework with input–output linkages, external economies of scale, and heterogeneous locations. Because policy instruments interact endogenously through prices, production networks, and income effects, the planner’s problem is inherently high-dimensional, and the optimal policy depends on the presence and intensity of the others.


Our framework extends existing approaches to optimal trade and industrial policy by jointly analyzing multiple policy instruments in a unified equilibrium setting with many heterogeneous locations. Union-level decision making internalizes cross-sectoral and cross-regional spillovers, substantially altering classical optimal policy prescriptions.


Using data on 235 EU regions and the rest of the world across 54 sectors, we show that evaluating tariffs, industrial subsidies, or public spending in isolation leads to lower welfare outcomes. Optimal joint policies exhibit strong interactions: trade policy extracts terms-of-trade rents, industrial policy alleviates misallocation and targets upstream sector-locations, and public spending smooths the uneven regional incidence of interventions. These aggregate gains obfuscate substantial heterogeneity across locations, underscoring the importance of accounting for regional inequality when designing optimal policies in an economic union with heterogeneous locations.

Biography: Please see https://www.glennmagerman.com/

It will be hybrid via Webex. Please click here : https://iheid.webex.com/wbxmjs/joinservice/sites/iheid/meeting/download/e19096b912b84189ae28dabdf22c4e6d?MTID=m7058e8e45bdde3c0c75ba44eac925297 toparticipate via Webex.

The presenter will be available as of 14:00 for a shortexchange with participants.

Lieu

Bâtiment: Maison de la paix

Graduate Institute
2 Chemin Eugène-Rigot,
Petal 1, Room S5
1202 Genève

entrée libre