Economics Dictionary of ArgumentsHome
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| Export subsidies: Export subsidies are government payments or other incentives (e.g., tax breaks, low-cost loans) provided to domestic firms that export goods. Their aim is to make domestic products more competitive in international markets by lowering their effective export price, thereby boosting exports. However, they can be viewed as unfair trade practices by other countries and often lead to trade disputes. See also Incentives, Taxation, Tariffs, Subsidies, Import quotas._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Robert C. Feenstra on Export Subsidies - Dictionary of Arguments
Feenstra I 8-1 Import quotas/export subsidies/Feenstra: In addition to import tariffs, quotas and subsidies are widely used forms of trade policy. Quotas and subsidies can in principle be applied to either imports or exports, (…). How do these policy instruments differ from tariffs, and does this depend on the type of competition in the market? >Tariffs/Bhagwati. Feenstra I 8-1 Trad policies: The finding that trade policies have differing effects depending on the market structure carries over to the case of export subsidies. In the conventional two-sector model, there is no reason to use export subsidies: they will lead to a deadweight loss (analogous to a tariff) for a small country, and have an additional terms of trade loss (the opposite of a tariff) for a large country. This seems to contradict the fact that many countries have used export subsidies to support their industries at some time. To explain this, we need to go beyond the two-sector model with perfect competition. Adding more goods turns out to make a difference, and there is a potential role for targeted export subsidies in models with many goods (Feenstra, 1986(1), Itoh and Kiyono, 1987(2)). Imperfect competition: Dropping perfect competition, and instead allowing for duopoly between a home and foreign firm exporting to a third market, also makes a difference. >Perfect competition, >Imperfect competition. The question then is whether the home government can give its own firm a “strategic” advantage by subsidizing it. We shall require that the subsidy also be in the national interest, which means that profits for the exporter need to rise by more than the amount of the subsidy itself. Initial analysis of this problem (Brander and Spencer, 1985)(3) suggested that such an advantage would indeed occur, at least under Cournot-Nash competition. >Cournot competition. Later work, however (Eaton and Grossman, 1986)(4), showed that this advantage would be reversed under Bertrand competition. The conclusion is that export subsidies are in the national interest only under some forms of market competition, but not generally. >Bertrand competition, >Competition, >International trade. 1. Feenstra, Robert C., 1986, “Trade Policy with Several Goods and 'Market Linkages',” Journal of International Economics, 20, 249-267. 2. Itoh, Motoshige and Kazuharu Kiyono, 1987, “Welfare-Enhancing Export Subsidies,” Journal of Political Economy, 95(1), February,115-37. 3. Brander, James A. and Barbara Spencer, 1985, “Export Subsidies and International Market Share Rivalry,” Journal of International Economics, 16, 83-100. 4. Eaton, Jonathan and Gene M. Grossman, 1986, “Optimal Trade and Industrial Policy under Oligopoly,” Quarterly Journal of Economics, 101(2), May, 383-406. Reprinted as chapter 7 in Gene M. Grossman, 1992, Imperfect Competition and International Trade. Cambridge: MIT Press, 121-139._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Feenstra I Robert C. Feenstra Advanced International Trade University of California, Davis and National Bureau of Economic Research 2002 |
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