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Evaluating the case for export subsidies


  • Panagariya, Arvind


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.

Suggested Citation

  • Panagariya, Arvind, 2000. "Evaluating the case for export subsidies," Policy Research Working Paper Series 2276, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2276

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    References listed on IDEAS

    1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
    2. Nogues, Julio, 1989. "Latin America's experience with export subsidies," Policy Research Working Paper Series 182, The World Bank.
    3. J. N. Bhagwati & T. N. Srinivasan, 1969. "Optimal Intervention to Achieve Non-Economic Objectives," Review of Economic Studies, Oxford University Press, vol. 36(1), pages 27-38.
    4. Richard Arnott & Joseph Stiglitz, 1986. "The Welfare Economics of Moral Hazard," Working Papers 635, Queen's University, Department of Economics.
    5. Fitzgerald, Bruce & Monson, Terry, 1989. "Preferential Credit and Insurance as Means to Promote Exports," World Bank Research Observer, World Bank Group, vol. 4(1), pages 89-114, January.
    6. Bhagwati, Jagdish N, 1988. "Export-Promoting Trade Strategy: Issues and Evidence," World Bank Research Observer, World Bank Group, vol. 3(1), pages 27-57, January.
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    Cited by:

    1. ECKAUS, Richard S., 2006. "China's exports, subsidies to state-owned enterprises and the WTO," China Economic Review, Elsevier, vol. 17(1), pages 1-13.
    2. Roberto Alvarez & Ricardo A. López, 2008. "Is Exporting a Source of Productivity Spillovers?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 144(4), pages 723-749, December.
    3. Drabek, Zdenek & Laird, Sam, 2001. "Can trade policy help mobilize financial resources for economic development?," WTO Staff Working Papers ERAD-2001-02, World Trade Organization (WTO), Economic Research and Statistics Division.
    4. Mulu Gebreyesus & Ashagrie Demile, 2017. "Why export promotion efforts failed to deliver? Assessment of the export incentives and their implementation in Ethiopia," Working Papers 017, Ethiopian Development Research Institute.
    5. Afonso, Oscar & Silva, Armando, 2012. "Non-scale endogenous growth effects of subsidies for exporters," Economic Modelling, Elsevier, vol. 29(4), pages 1248-1257.
    6. Lederman, Daniel & Olarreaga, Marcelo & Payton, Lucy, 2010. "Export promotion agencies: Do they work?," Journal of Development Economics, Elsevier, vol. 91(2), pages 257-265, March.
    7. Alvarez, Roberto, 2007. "Explaining Export Success: Firm Characteristics and Spillover Effects," World Development, Elsevier, vol. 35(3), pages 377-393, March.
    8. Beladi, Hamid & Chao, Chi-Chur, 2003. "The role of export subsidies in balance-of-payment crises," European Journal of Political Economy, Elsevier, vol. 19(4), pages 875-884, November.

    More about this item


    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;

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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