Removing Export Credit Subsidies to the Soviet Bloc: Who Gets Hurt and by How Much?
Abstract
Under the standard assumptions of neo-classical trade theory, it has been shown that export subsidies are never in the general interest of the donor country, because the subsidy accrues, at least in part, to the importing country and leads to less than optimal resource allocation in the exporting country. Nevertheless export credit subsidies have been a longstanding fixture of international trade. Policymakers have employed them to win export orders from a sector, if a fall in orders is likely to increase employment in that industry. Despite the prevalence of these subsidies, little effort appears to have been expended to estimate their economic cost or what would transpire if they were eliminated. The purpose of this article is to partially fill this gap. We take two regions, the Soviet Union and Eastern Europe, and estimate the likely impact on 1981 exports from the Organization of Economic Cooperation and Development (OECD) to these regions, if credit subsidies had been eliminated in that year. Due to the variety of forms in which these subsidies are given, data constraints make it possible to quantify all the transfers implicit in these forms. Therefore, the projections given are restricted to the value of direct and indirect interest rate subsidies on new Western loans granted to Eastern Europe and the Soviet Union in 1981 and the possible effects of their elimination.
Document Details
- Document Type
- Technical Report
- Publication Date
- Oct 01, 1984
- Accession Number
- ADA152558
Entities
People
- D. F. Kohler
- K. Crane
Organizations
- RAND Corporation