Latin America's experience with export subsidies

Abstract

Twenty years ago, it ws believed that export subsidies would produce more diversification and better export performance. This has not happened. In most cases, export subsidies were not supported by more open import policies - so subsidies reduced only marginally the anti-export bias of Latin American countries. Unstable real exchange rates have also hurt exports. Export subsidies appear to have improved exports in Brazil, which also liberalized imports, stabilized exchange rates, and promoted other policies conducive to export growth. Yet Mexico, after reducing import barriers, also enjoyed improved exports - with minimum export subsidies, and with apparently lower social costs than Brazil experienced. Export subsidies have failed in other Latin American countries - and particularly hurt development in Argentina, where fraud, corruption, and rent-seeking have been rampant. The author contends that the failure of export subsidies should remind us of the importance of distinguishing what is possible from what is likely. Finally, export subsidies compete with other government programs, and, considering their failure rate, the money might be better spent on infrastructure, health, and education projects.