Export Credit Subsidies

Abstract

Export credit subsidies Jacques Melitz and Patrick Messerlin In recent years governments have increasingly resorted to export credit subsidies. The major motivation for the proliferation of such schemes seems to be macroeconomic rather than microeconomic in nature. The conventional argument – namely that they simultaneously increase demand and improve the current account – is fundamentally flawed in ignoring the second-round effects on prices and the exchange rate. The authors investigate whether there is a valid macroeconomic case for export credit subsidies and find that temporary measures can be useful in reducing the recessionary costs of a disinflationary program by permitting a larger appreciation of the exchange rate during the initial stages of the program. They also present detailed evidence on the impact across different industries of export credits in France. These are heavily concentrated on a small number of industries – specifically machine tools, construction, metalworking, aircraft/ships and electrical equipment. The distortionary effect on industrial structure is consequently large, and any beneficial macroeconomic benefits are likely to be outweighed by the microeconomic costs. The case for export credit subsidies is not persuasive.