Taking Trade Policy Seriously: Export Subsidization as a Case Study in Policy Effectiveness
NBER Working Paper No. 4567
In thinking about policy, academic economists alternate between theoretical models in which governments can design finely-tuned optimal interventions and practical considerations which usually assume the government to be incompetent and hostage to special interests. I argue in this paper that neither of these caricatures is accurate, and that there is much to be learned by undertaking systematic, analytical studies of state capabilities -- how they are generated and why they differ across countries and issue areas. Case studies of export subsidization in Korea, Brazil, Turkey, India, Kenya, and Bolivia are presented to confront usual presumptions against actual experience. Contrary to conventional wisdom, the successful cases (Korea and Brazil) turn out to be ones in which the government exercised discretion and selectivity, while the most uniform and non-discretionary cases (Kenya and Bolivia) were clear failures. The paradox is explained in terms of state autonomy and policy coherence.
Published: Alan Dearforf, et al, eds. New Directions in Trade Theory, Ann Arbor, MI: University of Michigan Press, 1995.