Evaluating the case for export subsidies
AbstractNow that import-substitution policies have failed and been discredited, there has been a shift in favor of interventions on behalf of export interests. The author argues that close scrutiny reveals these arguments to be as flawed as the old arguments for import substitution. Among other things, the author concludes that: 1) Under perfect competition, a country trying to retaliate against a trading partner's export subsidies by instituting its own export subsidies, will only hurt itself. 2) The argument that export subsidies may be useful for neutralizing import tariffs, is spurious. In most practical situations, this is not possible. Removal of tariffs is a far superior policy. 3) In principle, a case can be made for protecting infant export industries in the presence of externalities. But the empirical relevance of externalities remains as illusory for export industries as it was for import-substituting industries. 4) Adverse selection and moral hazard can lead to the thinning of the market for credit insurance, but that is not a case for government intervention. 5) India's experience shows export subsidies to have little impact on exports. Brazil and Mexico's experience shows export subsidies to be a costly instrument of export diversification. 6) Those who argue that pro-export interventions were important in East Asia have not provided convincing evidence of a casual relationship between the interventions and growth.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 2276.
Date of creation: 31 Jan 2000
Date of revision:
Economic Theory&Research; Environmental Economics&Policies; Banks&Banking Reform; Tax Law; Payment Systems&Infrastructure; Environmental Economics&Policies; Economic Theory&Research; Tax Law; Banks&Banking Reform; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT;
Other versions of this item:
- F1 - International Economics - - Trade
- F2 - International Economics - - International Factor Movements and International Business
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