Revisiting the economic effect of export subsidy: an expansion of the traditional analysis
| Date | 01 February 2013 |
| Published date | 01 February 2013 |
| Pages | 35-45 |
| DOI | https://doi.org/10.1108/17544401311292664 |
| Author | Zesheng Sun,Shuyun Wang |
| Subject Matter | Economics |
Revisiting the economic effect
of export subsidy: an expansion
of the traditional analysis
Zesheng Sun
School of Economics and Management,
Zhejiang University of Science and Technology, Hangzhou, China and
Shanghai Futures Exchange, Shanghai, China, and
Shuyun Wang
School of Finance and Accounting,
Changzheng Professional College of Zhejiang, Hangzhou, China
Abstract
Purpose – The purpose of this paper is to attempt to expand the traditional economic effect analysis
of export subsidy, which has previously ignored the incentive of export subsidies in terms of
competition from re-importation.
Design/methodology/approach – The paper performs a comparative static analysis based on the
traditional welfare analysis of export subsidies by introducing different transportation costs and using
small country model and large country model, respectively.
Findings – Compared with the traditional analysis, exporting countries that implement export
subsidies suffer less welfare loss and induce intra-industry trade of homogeneous products. Due to
export subsidy policy incentives, transportation costs heavily influence trade patterns, trade volumes
and welfare. Trade patterns evolve from unidirectional export to intra-industry trade as transportation
costs are reduced, with the main source of welfare loss coming from transportation costs. The
distribution of export subsidies is biased when domestic transportation costs are high. Under low
domestic transportation costs, inefficient intra-industry trade would emerge as a result of export
subsidy incentive.
Practical implications – The findings could be helpful to understand the impact of export subsidy
policy on trade pattern, trade volumes and welfare when considering international and domestic
transportation cost.
Originality/value – The paper emphasizes the incentive of export subsidy on re-importation, and
links it with transportation costs, which expand the traditional export subsidy analysis.
Keywords Export subsidy,Transportation cost, Economic effect,Intra-industry trade, Exports, Trade
Paper type Research paper
Export subsidy is a traditional trade policy used to support a nation’s export industry.
According to the World Trade Organization (WTO), an export subsidy is considered
to be an unfair policy which should be restricted or banned, and anti-subsidy duties
The current issue and full text archive of this journal is available at
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JEL classification – F13, H25
The authors are thankful for the financial support from China Postdoctoral Science
Foundation (20110490065) and the Humanities and Social Science Fund of Zhejiang Province
(11ZJQN067YB). The draft of this paper has been presented at the 2011 CES Annual Conference
held in Beijing, and the authors are thankful for the constructive comments from participants.
All errors are the authors’.
Effect of export
subsidy
35
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 6 No. 1, 2013
pp. 35-45
qEmerald Group Publishing Limited
1754-4408
DOI 10.1108/17544401311292664
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