On the Effects of State Aid in the Regional Jet Aircraft Industry

Author Name JINJI Naoto (Faculty Fellow, RIETI) / KAWAGOSHI Yoshitaka (Kyoto Sangyo University / Queensland University of Technology)
Creation Date/NO. March 2019 19-J-013
Research Project Comprehensive Research on the Current International Trade/Investment System (pt. IV)
Download / Links


In this study, we analyze the effects of state aid in the regional jet aircraft industry, taking the new entry of Mitsubishi Regional Jet (MRJ) by Mitsubishi Aircraft Corporation as an example. Using a simple model of imperfectly-competitive industry with a vertical relationship, we theoretically analyze the economic effects of research and development (R&D) subsidies for a new downstream entrant on an incumbent firm and domestic welfare. We show that the incumbent firm does not necessarily suffer from a loss in profits due to the new entry if it can benefit from spillovers from the new entrant through R&D in the upstream industry. Based on the theoretical results, we discuss policy implications.