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Export Policies in Resource-Based and High-Technology Industries
Export Policies in Resource-Based and High-Technology Industries
HIGH-TECHNOLOGY INDUSTRIES
Chapter 10
Sub·si·dy
government incentive in the form of financial aid or support
extended to an economic sector generally with the aim of
promoting economic and social policy
Rare Natural Resources
“stocks of materials that exist in the natural environment that
are both scarce and economically useful in production or
consumption,
either in their raw state or after a minimal amount of
processing” (WTO)
High-tech Industries
To examine how 02
To explain
governments canthe
Toeffect ofuse
strategically
explain two
the 01
export subsidies
other
impact ofexport
to bolster high-
policies: export
agricultural
technology
tariffs and
subsidies
companies onand
export
prices andquotas.
industries. the
welfare of
different groups.
A government policy to encourage export of goods and
Export discourage sale of goods on the domestic market.
Subsidy
KEY CONCEPTS
Export Quota
restriction on the value or volume of exports of a specified
good imposed by government of the exporting country
EXPORT SUBSIDIES IN A SMALL HOME
COUNTRY
180
160
Autarky price = $60
140
World Price = $100
a c Subsidies = $40
120
b d
100
Exports = 40 – 20 = 20
80
Exports after subsidies = 50 – 10 = 40
60
EXPORT TARIFFS We start with the case of a small exporting country facing fixed
world prices.
Following that, we look at how the outcome differs when the
country is large enough to affect world prices.
There is one other export policy that also benefits the large
country applying it: an export quota, which is a limit on the
amount that firms are allowed to export.
EXPORT QUOTAS
Home consumers gain the same amount of consumer surplus a due to lower domestic
prices.
If producers earned the lower price of P2 on all their quantity sold, as with the export
tariff, then they would lose (a + b + c + d) in producer surplus.
Under the export quota, they also earn rents of (c + e) on exports, which offsets the
loss in producer surplus. These rents equal the difference in prices, P *2 − P2, times the
amount exported .
The overall effect of the export quota on the Home welfare is the same as the export
tariff, with a net effect on welfare of e − (b + d).
CONCLUSIONS
1. An export subsidy leads to a fall in welfare for a small exporting
country facing a fixed world price. The drop in welfare is a
deadweight loss and is composed of a consumption and
production loss, similar to an import tariff for a small country.
KEY POINTS
2. In the large-country case, an export subsidy lowers the price of
that product in the rest of the world. The decrease in the export
price is a terms-of-trade loss for the exporting country.
Therefore, the welfare of the exporters decreases because of
both the deadweight loss of the subsidy and the terms-of-trade
loss. This is in contrast to the effects of an import tariff in the
large-country case, which generates a terms-of-trade gain for the
importing country.