Third-Country Effects of Export Incentives
55 Pages Posted: 4 Mar 2016 Last revised: 5 Aug 2018
Date Written: August 1, 2018
Though empirical literature on the effects of export incentives for domestic export is ample, empirical research on export incentives’ effects for third countries` export is lacking. This paper sheds light on this issue. According to existing theory, effects of domestic export incentives for third countries` exporters can be both negative (due to improved competitive position of subsidized goods) and positive (due to input-output linkages in global value chains (GVCs), for example, foreign exporters get access to cheaper and better quality subsidized inputs). This study develops the framework that enables to disentangle these effects empirically and estimates how export incentives implemented in Brazil, India and China (BICs) in 2009-2015 affected export of other 18 large emerging markets. Exploiting cross-product and cross-country variation over time and using three-stage structural model, the paper finds that negative competition effects of Indian and Chinese export incentives have caused annual drop in export of affected emerging country on average by 1.37 and 7.32 percentage points, respectively. On the other hand, the study reveals that due to positive “GVCs input-output linkages” effects of Indian and Chinese export incentives, export of affected emerging country has been increasing annually on average by 0.45 and 13.23 percentage points, respectively. There is no evidence of third-country effects of Brazilian export incentives.
Keywords: export incentives, Brazil, China, India, emerging markets, global value chains
JEL Classification: F13, F14, O10
Suggested Citation: Suggested Citation