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January 2000 - With import-substitution policies discredited, many have argued for interventions on behalf of export interests. But aren't arguments for export subsidies as flawed as arguments for import substitution? Now that import-substitution policies have failed and been discredited, there has been a shift in favor of interventions on behalf of export interests. Panagariya argues that close scrutiny reveals these arguments to be as flawed as the old arguments for import substitution. Among other things, Panagariya concludes that: 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; 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; 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; 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; 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; Those who argue that pro-export interventions were important in East Asia have not provided convincing evidence of a causal relationship between the interventions and growth. This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to explore conceptual and practical issues in the export policies of developing countries. The author may be contacted at panagari@econ.umd.edu.

Adverse Selection --- Banks and Banking Reform --- Competitiveness --- Cred Export --- Currencies and Exchange Rates --- Debt Markets --- Economic Theory and Research --- Emerging Markets --- Export Performance --- Export Subsidies --- Export Subsidy --- Exports --- Externalities --- Finance and Financial Sector Development --- Financial Literacy --- Foreign Trade --- Free Trade --- Interest --- Interests --- International Economics & Trade --- Investment --- Law and Development --- Macroeconomics and Economic Growth --- Moral Hazard --- Perfect Competition --- Private Sector Development --- Public Sector Development --- Rent --- Tariff --- Tariffs --- Tax --- Tax Law --- Taxation and Subsidies --- Taxes --- Trade Policy

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August 1999 - Adherents of the natural trading partner hypothesis argue that preferential trade agreements are more likely to improve welfare if participating countries already trade disproportionately with each other. Opponents argue the opposite. Neither side is right. The hypothesis holds up only if two countries are natural trading partners in the sense that one country tends to import what the other exports. Adherents of the natural trading partner hypothesis argue that preferential trade agreements (PTAs) are more likely to improve welfare if participating countries already trade disproportionately with each other. Opponents of the hypothesis claim that the opposite is true: welfare gains are likely to be greater if participating countries trade less with each other. Schiff shows that neither analysis is correct. The natural trading partner hypothesis can be rescued if it is redefined in terms of complementarity or substitutability in the trade relations of countries, rather than in terms of their volume of trade. Schiff asks not whether a country should form or join a trading bloc but which partner or partners it should select if it does join such a bloc. He shows that the pre-PTA volume of trade is not a useful criterion for selecting a partner. The pre-PTA volume is equal to zero if the partner is an importer of the good sold to the home country and it is indeterminate if the partner is an exporter of that good. Among Schiff's conclusions: The home country is better off with a large partner country. First, a large partner is more likely to satisfy the home country's import demand at the world price. Second, the home country is likely to gain more on its exports to a large partner country, because that partner is likely to continue importing from the world market after formation of the trading bloc. And since the partner charges a tariff on imports from the world market, the home country is more likely to improve its terms of trade by selling to the partner at the higher tariff-inclusive price if the partner is large; The PTA as a whole is likely to be better off if each country imports what the other exports (rather than each country importing what the other imports). Losses are similar but less likely, while gains are both more likely and the same or larger. This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to understand the economics of regional integration. The author may be contacted at mschiff@worldbank.org.

Currencies and Exchange Rates --- Customs Unions --- Economic Theory and Research --- Emerging Markets --- External Trade --- Finance and Financial Sector Development --- Free Trade --- Free Trade Agreements --- Free Trade Areas --- International Economics & Trade --- International Trade --- Law and Development --- Macroeconomics and Economic Growth --- Markets and Market Access --- Perfect Competition --- Preferential Trade --- Preferential Trade Agreement --- Private Sector Development --- Public Sector Development --- Regional Integration --- Regional Trade --- Tariff --- Tariff Revenues --- Trade --- Trade and Regional Integration --- Trade Creation --- Trade Diversion --- Trade Law --- Trade Policy --- Transport Costs --- Volume Of Trade --- World Trade

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Subsidies and cross-subsidies in the energy sector are common throughout Eastern Europe and Central Asia. In Belarus, revenues from an industrial tariff on electricity are used to cross-subsidize heating for households. Input-output (IO) data and a household consumption survey are used to analyze the distributional impacts of this cross-subsidization. This paper illustrates cost shares and electricity-intensity of different sectors and consumption categories and uses the IO data to obtain first-order estimates of the distributional incidence of policy reform. The paper then analyzes distributional impacts of subsidy reform with a Computable General Equilibrium model. Although poorer households benefit from reduced heating costs, the increase in prices of other consumer goods due to higher electricity prices more than offsets the benefits they receive from the subsidies. The analysis finds that the current cross-subsidies are regressive, and policy reform would be highly progressive.

Agriculture --- Approach --- Banking --- Benchmark --- Benchmark data --- Capital --- Capital returns --- Commodities --- Commodity --- Communication --- Competition --- Consumer demand --- Consumer good --- Consumer goods --- Consumer groups --- Consumer prices --- Consumers --- Consumption --- Cost increase --- Cost of electricity --- Cost of funds --- Costs --- Customer --- Customers --- Demand --- Developing economy --- Development policy --- Distribution --- District heating --- Domestic market --- Domestic price --- Economic cooperation --- Economic development --- Economic statistics --- Economic systems --- Economic theory & research --- Economics literature --- Elasticity --- Elasticity of substitution --- Electricity --- Electricity prices --- Emerging markets --- Energy --- Energy price --- Energy prices --- Energy production and transportation --- Equilibrium --- Equilibrium analysis --- Equilibrium price --- Equilibrium prices --- Exchange --- Expenditure --- Expenditures --- Export market --- Exports --- Externalities --- Factors of production --- Foreign exchange --- Fossil --- Fossil fuel --- Fuel --- Fuels --- Functional forms --- General equilibrium analysis --- Goods --- Heat --- Household analysis --- Income --- Income group --- Income groups --- Income levels --- Incomes --- Inputs --- Intermediate goods --- International markets --- Inventory --- Macroeconomics and economic growth --- Marginal cost --- Market --- Markets --- Markets & market access --- Multipliers --- Natural resources --- Oil --- Oil products --- Optimization --- Output --- Outputs --- Payments --- Perfect competition --- Price --- Price change --- Price changes --- Price index --- Price levels --- Prices --- Pricing --- Pricing policy --- Pricing scheme --- Private sector development --- Product --- Production --- Production costs --- Production function --- Production functions --- Production increases --- Production of coke --- Production structure --- Products --- Rate of return --- Real estate --- Rent --- Residential energy --- Revenue --- Savings --- Share --- Shares --- Subsidies --- Subsidization --- Subsidy --- Substitute --- Substitutes --- Substitution --- Supply --- Supply costs --- Tariff --- Tax --- Tax rate --- Tax rates --- Taxes --- Theory --- Total output --- Trade --- Transition economies --- Transport --- Transport economics policy and planning --- Trends --- Utility --- Utility functions --- Value --- Value added --- Variables --- Wealth --- Welfare