## Credibility and the Cost of Export Subsidies

_IMF Working Papers, December 1, 1991_

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**Canonical URL:** [Credibility and the Cost of Export Subsidies](https://www.imf.org/en/publications/wp/issues/2016/12/30/credibility-and-the-cost-of-export-subsidies-1006)

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## Bibliographic details
- Authors: Willy A Hoffmaister
- Published: December 1, 1991
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451855081.001

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### Summary
- Recurring balance of payments crises in countries that pursued import substitution led some to establish a variety of export incentives, in particular subsidies, to revive and re-orient their economies.
- Exporters are likely to be uncertain of the government’s commitment to export promotion because of the years of neglect.
- The paper analyzes the issue of the credibility of export subsidies and suggests that a government is able to convince exporters of its commitment only at a cost, which reduces the attractiveness of promoting exports by means of subsidies.

### Analysis and Key Findings
- The central analytical focus is on the credibility of export subsidies: uncertainty about government commitment reduces the effectiveness of subsidies.
- A government can build credibility with exporters, but only by incurring costs; these credibility costs diminish the appeal of export subsidies as a policy tool.
- The study frames export promotion through subsidies against the background of import substitution strategies and recurring balance of payments crises.

### Policy Implications and Recommendations
- Policymakers should account for the credibility costs associated with export subsidies when designing export promotion programs.
- The reduced attractiveness of subsidies, once credibility costs are considered, suggests the need to evaluate alternative measures for re-orienting economies away from import substitution toward sustainable export growth.
- Any export-promotion strategy should consider historical neglect of exporters and incorporate mechanisms to signal credible, sustained commitment.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/credibility-and-the-cost-of-export-subsidies-1006_