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Evaluating the case for export subsidies

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Author Info
Panagariya, Arvind

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Abstract

Now 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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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2276.

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Date of creation: 31 Jan 2000
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Handle: RePEc:wbk:wbrwps:2276

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Keywords: 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

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fitzgerald, Bruce & Monson, Terry, 1989. "Preferential Credit and Insurance as Means to Promote Exports," World Bank Research Observer, Oxford University Press, vol. 4(1), pages 89-114, January.
  2. Richard Arnott & Joseph Stiglitz, 1986. "The Welfare Economics of Moral Hazard," Working Papers 635, Queen's University, Department of Economics.
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  3. Bhagwati, Jagdish N, 1988. "Export-Promoting Trade Strategy: Issues and Evidence," World Bank Research Observer, Oxford University Press, vol. 3(1), pages 27-57, January.
  4. James Tybout, 1999. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Development and Comp Systems 9906001, EconWPA, revised 10 Jun 1999. [Downloadable!]
  5. Nogues, Julio, 1989. "Latin America's experience with export subsidies," Policy Research Working Paper Series 182, The World Bank. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Roberto Alvarez & Ricardo Lopez, 2006. "Is Exporting a Source of Productivity Spillovers?," Caepr Working Papers 2006-012, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington. [Downloadable!]
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