Can Developing Countries Benefit from Strategic Export Promotion?

Abstract

Casual observation shows that many developing countries adopt certain strategic trade measures such as export subsidies and domestic currency devaluation to promote their exports. This paper analyzes two effects of these measures, the externality associated with the import of capital goods and the reduction of distortion caused by foreign exchange constraint. These effects might be the economic rationale for developing country governments to promote export. It is found that promotion measures can definitely raise employment and productivity, but whether these measures can stimulate the production supplying to the domestic market and improve domestic welfare depends on the sufficient and necessary condition given by the paper.

Keywords: Export promotion, Export subsidy, Devaluation

JEL Classification: F13, F42, O19