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All these worlds are yours, except India: the effectiveness of cash subsidies to export in Nepal

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  • Fabrice Defever
  • Jose-Daniel Reyes
  • Alejandro Riaño
  • Gonzalo Varela

Abstract

This paper studies the impact of a `textbook' ad-valorem export subsidy on firm-level export performance. The Cash Incentive Scheme for Exports (CISE) program offered by the government of Nepal offers a cash subsidy to firms exporting a select group of products to countries other than India. Using customs transactions data combined with subsidy disbursements at the firm level from 2011 to 2014, we estimate the impact of the subsidy on exports of targeted and non-target product-destination combinations and their extensive and intensive margins. We employ a range of doubly-robust matching estimators to control for the non-random selection of exporters into the scheme. We find that subsidized firms increased their exports of targeted product-destinations relative to firms in the control group and that this rise is fully accounted for by the extensive margin: a higher number of targeted products exported and foreign markets served. We do not find any significant changes along the intensive margin nor among non-targeted product-destination combinations. While our results show that the CISE scheme fomented export diversification, its limited impact on total exports and high fiscal cost call into question its effectiveness.

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  • Fabrice Defever & Jose-Daniel Reyes & Alejandro Riaño & Gonzalo Varela, 2020. "All these worlds are yours, except India: the effectiveness of cash subsidies to export in Nepal," CEP Discussion Papers dp1692, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1692
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    More about this item

    Keywords

    export subsidies; export diversification; export margins; least developed countries; special and differential treatment for developing countries; Nepal;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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