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Evaluating the case for export subsidies

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  • Panagariya, Arvind

Abstract

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

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    1. J. N. Bhagwati & T. N. Srinivasan, 1969. "Optimal Intervention to Achieve Non-Economic Objectives," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 36(1), pages 27-38.
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    3. 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.
    4. Nogues, Julio, 1989. "Latin America's experience with export subsidies," Policy Research Working Paper Series 182, The World Bank.
    5. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    6. Fitzgerald, Bruce & Monson, Terry, 1989. "Preferential Credit and Insurance as Means to Promote Exports," The World Bank Research Observer, World Bank, vol. 4(1), pages 89-114, January.
    7. Bhagwati, Jagdish N, 1988. "Export-Promoting Trade Strategy: Issues and Evidence," The World Bank Research Observer, World Bank, vol. 3(1), pages 27-57, January.
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    Cited by:

    1. Sokolovska, Olena, 2016. "Trade credit insurance: theoretical background and some international practices," MPRA Paper 74303, University Library of Munich, Germany, revised Aug 2016.
    2. Fábio Batista & José Eduardo Matos & Miguel Costa Matos, 2017. "Assessing the Competitiveness of the Portuguese Footwear Sector," GEE Papers 0066, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Feb 2017.
    3. Mayeres, Inge & van Regemorter, Denise, 2002. "Modelling the Health Related Benefits of Environmental Policies: A CGE Model for the EU-15 Countries," Conference papers 331046, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Afonso, Oscar & Silva, Armando, 2012. "Non-scale endogenous growth effects of subsidies for exporters," Economic Modelling, Elsevier, vol. 29(4), pages 1248-1257.
    5. 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.
    6. 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.
    7. Fabrice Defever & José-Daniel Reyes & Alejandro Riaño & Gonzalo Varela, 2017. "All These Worlds Are Yours, Except India: The Effectiveness of Export Subsidies in Nepal," CESifo Working Paper Series 6418, CESifo.
    8. Olena SOKOLOVSKA, 2017. "Trade Credit Insurance: Theoretical Background And International Practices," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 64(1), pages 123-137, March.
    9. 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.
    10. Sokolovska Olena, 2017. "Trade Credit Insurance and Asymmetric Information Problem," Scientific Annals of Economics and Business, Sciendo, vol. 64(1), pages 123-137, March.
    11. Ohashi, Hiroshi, 2005. "Learning by doing, export subsidies, and industry growth: Japanese steel in the 1950s and 1960s," Journal of International Economics, Elsevier, vol. 66(2), pages 297-323, July.
    12. 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.
    13. Alvarez, Roberto, 2007. "Explaining Export Success: Firm Characteristics and Spillover Effects," World Development, Elsevier, vol. 35(3), pages 377-393, March.
    14. 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.
    15. Ana Rita Marques & Cátia Silva, 2018. "Assessing the Competitiveness of the Portuguese Chemical Sector," GEE Papers 0110, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Sep 2018.
    16. 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, Policy Studies Institute.

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    More about this item

    Keywords

    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;
    All these keywords.

    JEL classification:

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

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