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The equivalence of export subsidies and import tariff reductions in a macroeconomic model
Bala Batavia, Parameswar Nandakumar
The Journal of Economic Asymmetries, Volume 15, June 2017
A general equilibrium macroeconomic model is used to study the equivalence of export subsidies and import tariff reductions in increasing export output. It is shown that the qualitative effects of both policies are the same; an import tariff reduction is an equally viable alternative for expanding exports. It is also seen that in a typical developing economy with a large nontradable goods sector, the import tariff reduction may well be a better choice in this regard. Hence, when striving for export expansion, developing countries and emerging market nations cannot afford to be lackadaisical in liberalizing imports. This observation may be also related to the argument that it is not possible to nurture a small pocket of advanced export industry in an economy shaded from competition and characterized by inefficiency and low productivity.