Duty Drawbacks, Competitiveness, and Growth: Are Duty Drawbacks Worth the Hassle?

56 Pages Posted: 26 Jan 2005

Date Written: February 2005

Abstract

Many countries use duty drawbacks on exports, yet they have been given little attention in the literature and there is no consensus whether countries should embrace or abandon them. Ianchovichina asserts that the answer depends on a country's development priorities and economic conditions. An increase in the drawback has a positive impact on export competitiveness and employment, but could lead to exports with low domestic value added. The welfare effects of duty drawback reform are ambiguous. An increase in the drawback is more likely to be welfare improving if the economy is small with high input tariffs, low initial drawback, low administrative costs, and leakages in the tariff collection system. In China duty drawback removal after meeting WTO commitments will deepen domestic supply chains and improve welfare, but will hurt China's economic efficiency, export competitiveness, and real factor incomes. Further liberalization could mitigate these negative effects.

This paper - a product of the Economic Policy Division, Poverty Reduction and Economic Management Network - is part of a larger effort in the network to study growth and competitiveness.

Keywords: Duty drawback, Competitiveness, Tariff reform, China

JEL Classification: F11, F13

Suggested Citation

Ianchovichina, Elena, Duty Drawbacks, Competitiveness, and Growth: Are Duty Drawbacks Worth the Hassle? (February 2005). World Bank Policy Research Working Paper No. 3498. Available at SSRN: https://ssrn.com/abstract=654542 or http://dx.doi.org/10.2139/ssrn.654542

Elena Ianchovichina (Contact Author)

World Bank ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-8910 (Phone)
202-522-1159 (Fax)

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