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The equivalence of export subsidies and import tariff reductions in a macroeconomic model

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  • Batavia, Bala
  • Nandakumar, Parameswar

Abstract

A general equilibrium macroeconomic model is used to study the equivalence of export subsidies and import tariff reductions in increasing export output. It is shown that the qualitative effects of both policies are the same; an import tariff reduction is an equally viable alternative for expanding exports. It is also seen that in a typical developing economy with a large nontradable goods sector, the import tariff reduction may well be a better choice in this regard. Hence, when striving for export expansion, developing countries and emerging market nations cannot afford to be lackadaisical in liberalizing imports. This observation may be also related to the argument that it is not possible to nurture a small pocket of advanced export industry in an economy shaded from competition and characterized by inefficiency and low productivity.

Suggested Citation

  • Batavia, Bala & Nandakumar, Parameswar, 2017. "The equivalence of export subsidies and import tariff reductions in a macroeconomic model," The Journal of Economic Asymmetries, Elsevier, vol. 15(C), pages 76-80.
    • Handle: RePEc:eee:joecas:v:15:y:2017:i:c:p:76-80
    DOI: 10.1016/j.jeca.2017.02.003
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    References listed on IDEAS

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    1. Elhanan Helpman, 1977. "Nontraded Goods and Macroeconomic Policy Under a Fixed Exchange Rate," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 91(3), pages 469-480.
    2. S.M. Shafaeddin, 2005. "Trade Liberalization And Economic Reform In Developing Countries: Structural Change Or De-Industrialization?," UNCTAD Discussion Papers 179, United Nations Conference on Trade and Development.
    3. Ramesh C. Paudel, 2014. "Liberalisation reform and export performance of India," ASARC Working Papers 2014-03, The Australian National University, Australia South Asia Research Centre.
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