Publication: Evaluating the Case for Export Subsidies
Loading...
Files in English
787 downloads
Published
2000-01
ISSN
Date
2015-07-23
Author(s)
Editor(s)
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 partners 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.
Link to Data Set
Citation
“Panagariya, Arvind. 2000. Evaluating the Case for Export Subsidies. Policy Research Working Paper;No. 2276. © World Bank. http://hdl.handle.net/10986/22282 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication The Economic Value of Weather Forecasts: A Quantitative Systematic Literature Review(Washington, DC: World Bank, 2025-09-10)This study systematically reviews the literature that quantifies the economic benefits of weather observations and forecasts in four weather-dependent economic sectors: agriculture, energy, transport, and disaster-risk management. The review covers 175 peer-reviewed journal articles and 15 policy reports. Findings show that the literature is concentrated in high-income countries and most studies use theoretical models, followed by observational and then experimental research designs. Forecast horizons studied, meteorological variables and services, and monetization techniques vary markedly by sector. Estimated benefits even within specific subsectors span several orders of magnitude and broad uncertainty ranges. An econometric meta-analysis suggests that theoretical studies and studies in richer countries tend to report significantly larger values. Barriers that hinder value realization are identified on both the provider and user sides, with inadequate relevance, weak dissemination, and limited ability to act recurring across sectors. Policy reports rely heavily on back-of-the-envelope or recursive benefit-transfer estimates, rather than on the methods and results of the peer-reviewed literature, revealing a science-to-policy gap. These findings suggest substantial socioeconomic potential of hydrometeorological services around the world, but also knowledge gaps that require more valuation studies focusing on low- and middle-income countries, addressing provider- and user-side barriers and employing rigorous empirical valuation methods to complement and validate theoretical models.Publication The State of Global Services Trade Policies: Evidence from Recent Data(Washington, DC: World Bank, 2025-10-28)The economic environment for services trade has changed dramatically over the past 15 years, driven by rapid technological progress that has expanded the possibilities for exchanging services. How has trade policy responded to these changes? How do policy stances in a wide range of service sectors compare across economies? With its unprecedented global coverage, the Services Trade Policy Database and the associated Services Trade Restrictions Index, developed jointly by the World Bank and the World Trade Organization, help address these questions. This paper makes three principal contributions. First, it offers an in-depth discussion of the current state of services trade policies and their differences across 134 economies and 34 services subsectors. Second, the paper reveals how recent (2016–22) changes in policy stances have seen progressive liberalization by lower-income economies but stabilization or even slight policy reversals in high-income economies. This dynamic differs fundamentally from the trend that unfolded after the Great Recession over 2008–16. Third, the paper shows the implications of policy changes over the past six years on services trade costs, and it showcases how the Services Trade Policy Database’s regulatory information can inform trade negotiations, regulatory analysis, and policy making. Alongside these contributions, the paper documents updates to the Services Trade Policy Database’s economy and sector coverage and explains the latest methodological improvements made to the World Bank–World Trade Organization Services Trade Restrictions Index.Publication It’s Not (Just) the Tariffs: Rethinking Non-Tariff Measures in a Fragmented Global Economy(Washington, DC: World Bank, 2025-10-22)As tariffs have declined, non-tariff measures (NTMs) have become central to trade policy, especially in high-income countries and regulated sectors like food and green technologies. Although NTMs may serve legitimate goals, they could also sort countries and firms into or out of markets based on compliance capacity and differences in product mix. Documenting recent advances in the estimation of ad valorem equivalents (AVEs), this paper uncovers new patterns of use and exposure of NTMs. High-income countries rely more heavily on NTMs relative to tariffs, while low- and middle-income countries face steeper AVEs on their exports. Firm-level evidence shows that NTMs disproportionately affect smaller firms, leading to market exit and concentration. Poorly designed NTMs can harm productivity and welfare, while coordinated, capacity-aware use can deliver inclusive outcomes. Policy design, transparency, and diagnostics must evolve to reflect the growing role—and risks—of NTMs in a fragmented global trade landscape.Publication The Marshall Plan: Then and Now(Washington, DC: World Bank, 2025-10-14)This paper is a product of the Development Policy Team, Development Economics. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Welfare and Poverty Effects of Global Agricultural and Trade Policies Using the Linkage Model(World Bank, Washington, DC, 2009-06)This paper analyzes the economic effects of agricultural price and merchandise trade policies around the world as of 2004 on global markets, net farm incomes, and national and regional economic welfare and poverty, using the global economy wide Linkage model, new estimates of agricultural price distortions for developing countries, and poverty elasticity's approach. It addresses two questions: to what extent are policies as of 2004 still reducing rewards from farming in developing countries and thereby adding to inequality across countries in farm household incomes? Are they depressing value added more in primary agriculture than in the rest of the economy of developing countries, and earnings of unskilled workers more than of owners of other factors of production, thereby potentially contributing to inequality and poverty within developing countries (given that farm incomes are well below non-farm incomes in most developing countries and that agriculture there is intensive in the use of unskilled labor)? Results are presented for the key countries and regions of the world and for the world as a whole. They reveal that, by moving to free markets, income inequality between countries will be reduced at least slightly, all but one-sixth of the gains to developing countries will come from agricultural policy reform, unskilled workers in developing countries the majority of whom work on farms will benefit most from reform, net farm incomes in developing countries will rise by 6 percent compared with 2 percent for non-agricultural value added, and the number of people surviving on less than US$1 a day will drop 3 percent globally.Publication Introduction and summary to the Handbook of Trade Policy and WTO Accession for Development in Russia and the CIS(World Bank, Washington, DC, 2005-10)This paper is the introduction and summary chapter of the 43 chapter volume entitled Handbook of Trade Policy and WTO Accession for Development in Russia and the CIS. The key policy conclusions of each of the chapters are highlighted in this paper. The Handbook will be published only in Russian in 2005, but an English language version of the majority of the papers described here is available on the website www.worldbank.org/trade/russia-wto. This paper first explains the potential importance of World Trade Organization (WTO) accession as a development tool, and discusses the recent successful development models and the role of trade policy in their development. The paper then summarizes the three parts of the Handbook. The first part treats trade policy (with applications to Russia and the Commonwealth of Independent States [CIS]). The second part treats World Trade Organization institutions and disciplines, again with Russia and CIS applications. And the third part focuses on various aspects of the impact of WTO accession on Russia. The numerous papers that relate trade policy and WTO accession to experience in Russia and the CIS are likely to be of special interest to native English speakers, since these papers are new to the literature. The papers in the Handbook are intended to be non-technical materials accessible to a wide policy audience. The Handbook forms the basis of a World Bank Institute course on trade policy and WTO accession, which has been delivered and will be delivered again on multiple occasions.Publication Strengthening Bolivian Competitiveness : Export Diversification and Inclusive Growth(World Bank, 2009-06-01)Bolivia's trade liberalization, launched in the mid-1980s, has resulted in a relatively open trade regime; but the results have been mixed. Bolivia's export to Gross Domestic Product (GDP) ratio and export entrepreneurship index rating are among the highest in the Latin American and Caribbean (LAC) region and the country has achieved great success in making soya the major export crop in less than 10 years. At the same time, the country's share in world trade has stagnated and exports are increasingly dominated by gas and minerals. Reinvigorating the nontraditional export sector is important for the government of Bolivia as it implements its national development plan. As a resource-rich country, the Bolivian government's emphasis on export diversification is well-placed but the optimal nontraditional export strategy should build on successes in the traditional sector. This study investigates: (a) the role trade should play in Bolivia's development strategy considering the country's natural resource endowment; (b) the lessons of Bolivia's integration to the world economy; (c) the linkages between Bolivia's past trade and economy and a forward-looking analysis of the impact of different scenarios on growth, employment, trade flows, and poverty; (d) constraints to higher export competitiveness and weaknesses related to transport and logistics; and (e) the characteristics of exporting firms and the constraints affecting them. The main findings of the analysis are that preferential access to world markets is necessary but not sufficient for success in nontraditional exports; rather, success depends largely on increasing the competitiveness of exporting firms. Second, a neutral incentive regime is essential to the growth of nontraditional exports. Third, efficient backbone services are vital for reducing exporters' costs. Finally, the government should be proactive in addressing institutional impediments to cross-border trade. The study presents prioritized policy implications of the analysis related to: (i) trade policy and preferential access to markets; (ii) the incentives regime; (iii) backbone services; (iv) increasing the effectiveness of institutions to promote cross-border trade; and (v) setting the foundations for exports diversification.Publication Trade Policy and Labor Services : Final Status Options for the West Bank and Gaza(World Bank, Washington, D.C., 2002-04)The author considers the policy options of the West Bank and Gaza with respect to trade and the export of labor services. He concludes that: 1) Nondiscriminatory trade policy is unambiguously superior to a free trade agreement with Israel; 2) The West Bank and Gaza should pursue a nondiscriminatory trade policy with all its neighbors, but only on the condition that the trade policy be open, transparent, and enforced by a credible lock-in mechanism. Otherwise, a customs union with Israel may be preferable; 3) The Palestinian Authority should establish a system of fee-based permits for Palestinians working in Israel; and 4) The Palestinian Authority should consider allowing Jordanians access to the West Bank and Gaza labor market.Publication Pakistan : Reinvigorating the Trade Agenda(World Bank, Washington, DC, 2013-03)This paper reviews Pakistan's recent trade performance, its trade policy and trade costs. Different dimensions of trade performance growth and orientation, diversification and sophistication are assessed, complemented by an in-depth analysis of export dynamics in the period 2001-10 using firm-level data. An econometric exercise is also performed to identify the impact of tariffs, exchange rates, fixed costs to export, foreign demand, and preferential trade policy on the ability of firms to increase their exports. The analysis of Pakistan's trade policy includes tariffs, effective protection and trade restrictiveness estimates, as well as an assessment of the role of preferential trade agreements in the context of regional integration. Finally, the main characteristics of trade facilitation and logistics are analyzed, covering the capacity, performance, quality of services and degree of integration of the logistics system.
Users also downloaded
Showing related downloaded files
Publication Governance Matters IV : Governance Indicators for 1996-2004(World Bank, Washington, DC, 2005-06)The authors present the latest update of their aggregate governance indicators, together with new analysis of several issues related to the use of these measures. The governance indicators measure the following six dimensions of governance: (1) voice and accountability; (2) political instability and violence; (3) government effectiveness; (4) regulatory quality; (5) rule of law, and (6) control of corruption. They cover 209 countries and territories for 1996, 1998, 2000, 2002, and 2004. They are based on several hundred individual variables measuring perceptions of governance, drawn from 37 separate data sources constructed by 31 organizations. The authors present estimates of the six dimensions of governance for each period, as well as margins of error capturing the range of likely values for each country. These margins of error are not unique to perceptions-based measures of governance, but are an important feature of all efforts to measure governance, including objective indicators. In fact, the authors give examples of how individual objective measures provide an incomplete picture of even the quite particular dimensions of governance that they are intended to measure. The authors also analyze in detail changes over time in their estimates of governance; provide a framework for assessing the statistical significance of changes in governance; and suggest a simple rule of thumb for identifying statistically significant changes in country governance over time. The ability to identify significant changes in governance over time is much higher for aggregate indicators than for any individual indicator. While the authors find that the quality of governance in a number of countries has changed significantly (in both directions), they also provide evidence suggesting that there are no trends, for better or worse, in global averages of governance. Finally, they interpret the strong observed correlation between income and governance, and argue against recent efforts to apply a discount to governance performance in low-income countries.Publication Breaking the Conflict Trap : Civil War and Development Policy(Washington, DC: World Bank and Oxford University Press, 2003)Most wars are now civil wars. Even though international wars attract enormous global attention, they have become infrequent and brief. Civil wars usually attract less attention, but they have become increasingly common and typically go on for years. This report argues that civil war is now an important issue for development. War retards development, but conversely, development retards war. This double causation gives rise to virtuous and vicious circles. Where development succeeds, countries become progressively safer from violent conflict, making subsequent development easier. Where development fails, countries are at high risk of becoming caught in a conflict trap in which war wrecks the economy and increases the risk of further war. The global incidence of civil war is high because the international community has done little to avert it. Inertia is rooted in two beliefs: that we can safely 'let them fight it out among themselves' and that 'nothing can be done' because civil war is driven by ancestral ethnic and religious hatreds. The purpose of this report is to challenge these beliefs.Publication Government Matters III : Governance Indicators for 1996-2002(World Bank, Washington, DC, 2003-08)The authors present estimates of six dimensions of governance covering 199 countries and territories for four time periods: 1996, 1998, 2000, and 2002. These indicators are based on several hundred individual variables measuring perceptions of governance, drawn from 25 separate data sources constructed by 18 different organizations. The authors assign these individual measures of governance to categories capturing key dimensions of governance and use an unobserved components model to construct six aggregate governance indicators in each of the four periods. They present the point estimates of the dimensions of governance as well as the margins of errors for each country for the four periods. The governance indicators reported here are an update and expansion of previous research work on indicators initiated in 1998 (Kaufmann, Kraay, and Zoido-Lobat 1999a,b and 2002). The authors also address various methodological issues, including the interpretation and use of the data given the estimated margins of errors.Publication Governance Matters VIII : Aggregate and Individual Governance Indicators 1996–2008(2009-06-01)This paper reports on the 2009 update of the Worldwide Governance Indicators (WGI) research project, covering 212 countries and territories and measuring six dimensions of governance between 1996 and 2008: Voice and Accountability, Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. These aggregate indicators are based on hundreds of specific and disaggregated individual variables measuring various dimensions of governance, taken from 35 data sources provided by 33 different organizations. The data reflect the views on governance of public sector, private sector and NGO experts, as well as thousands of citizen and firm survey respondents worldwide. The authors also explicitly report the margins of error accompanying each country estimate. These reflect the inherent difficulties in measuring governance using any kind of data. They find that even after taking margins of error into account, the WGI permit meaningful cross-country comparisons as well as monitoring progress over time. The aggregate indicators, together with the disaggregated underlying indicators, are available at www.govindicators.org.Publication Design Thinking for Social Innovation(2010-07)Designers have traditionally focused on enchancing the look and functionality of products.