Export subsidies are attempts by the government to interfere with the free flow of exports. They are payments to a firm or individual for shipping a good abroad. Similar to taxes, export subsidies can be specific (a fixed sum per unit) or ad valorem (a proportion of the value exported). Around the world, the export industry most frequently subsidized is agriculture.
The stated reasoning for export subsidies varies depending upon the product and industry, but proponents frequently invoke the notion of self-sufficiency or national security concerns. When effective, export subsidies reduce the price of goods for foreign importers and cause domestic consumers to pay relatively higher prices. They thus distort the pattern of trade away from production based on comparative advantage and, like tariffs and quotas, disrupt equilibrium trade flows and reduce world economic welfare.
In 2007, for example, the second-largest exporter of sugar was the European Union (EU), in larger part because of EU sugar subsidies. Conversely, Mozambique sugar farmers have a difficult time competing in world sugar markets despite their lower production costs because the EU subsidies artificially lower the world price of sugar (Frith 2005). In this way, export subsidies often disrupt and impede economic development in less-developed countries. In addition, export subsidies can often lead individuals and countries to engage in legislative actions in order to mitigate the impact of export subsidies on them. These activities can include antidumping legislation, retaliatory tariffs, and nontariff barriers to entry. While these activities can sometimes mitigate the negative impact of a subsidy on a particular group of individuals, the expenditure of resources in response to a previous intervention generally does not increase overall economic welfare as the resources employed to mitigate the subsidy’s effect could have been used elsewhere in the economy.
Export subsidies have
Bibliography: Feenstra, R., and A. Taylor. (2008). International Economics. Worth Publishers. Frith, M. (2005). “Bitter Harvest: How EU Sugar Subsidies Devastate Africa,” The Independent, June 22, 2005. Helling, M., Beaulier, S., and J. Hall. (2008). “High Cotton: Why the United States Should No Longer Provide Agricultural Subsidies to Cotton Farmers,” Economic Affairs 28 (2): 65-66. Krugman, P., and M. Obstfeld. (2006). International Economics: Theory and Policy. Addison-Wesley. Scott Beaulier, Ph.D. Mercer University Joshua Hall, Ph.D. Beloit College