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Industrial Policy under Constraints: Evidence from Pakistan’s Export Subsidy Schemes

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  • Lovo,Stefania
  • Varela, Gonzalo J.

Abstract

This paper investigates the impact of an export promotion policy consisting of ad-valorem subsidies for a set of targeted products, on the performance of Pakistani exports in the textile sector. The findings show that the policy had a small overall impact on exports, while it induced substantial reallocation of exports across products. The policy induced an increase in exports of traditional products, mostly garments, which were eligible for the highest rebate rates, at the expense of non-eligible or lower-rated products. The paper presents suggestive evidence indicating that the observed effects are partially attributed to shifts in the composition of exporters, through exits and entries alongside capacity constraints. Finally, the evidence shows that the scheme induced strategic misreporting at the border, which contributed marginally to the overall effects.

Suggested Citation

  • Lovo,Stefania & Varela, Gonzalo J., 2025. "Industrial Policy under Constraints: Evidence from Pakistan’s Export Subsidy Schemes," Policy Research Working Paper Series 11136, The World Bank.
    • Handle: RePEc:wbk:wbrwps:11136
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