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Non-scale endogenous growth effects of subsidies for exporters

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  • Afonso, Oscar
  • Silva, Armando

Abstract

We built a general equilibrium endogenous growth model in which final goods are produced either in the relatively skilled-labour intensive exports sector or in the relatively unskilled-labour intensive domestic sector. We show that, by affecting the technological-knowledge bias, subsidies explain the simultaneous rise in the exports sector, the skill wage premium and the economic growth rate. Then, to shed light upon the causal nexus between production-related subsidies and exports, we use a Portuguese longitudinal database (1996–2003) and implement a propensity score matching approach. Empirical results seem to prove the theoretical predictions: subsidies generate the rise in the wage premium of exporters and the increase in the relative size of export sector, even if no impact of subsidies is found in the capacity of transforming domestic firms into new exporters.

Suggested Citation

  • Afonso, Oscar & Silva, Armando, 2012. "Non-scale endogenous growth effects of subsidies for exporters," Economic Modelling, Elsevier, vol. 29(4), pages 1248-1257.
    • Handle: RePEc:eee:ecmode:v:29:y:2012:i:4:p:1248-1257
    DOI: 10.1016/j.econmod.2012.04.019
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    More about this item

    Keywords

    Subsidies; Exports; Scale-invariant growth; Wages;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other

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