Abstract
The persisting trade imbalances, mounting external debt and its servicing burden, depleting foreign exchange reserves, etc., have often led to considering export promotion as a policy alternative for India. However, our continuing reliance on industrial market economies for exports underlines the importance of competition (imperfect) in product quality and price. The analytical re!lults of this paper show that if the underlying imperfect market structure of India's export trading is characterized by Cournot duopoly, the impact of export subsidies can be favourable in terms of larger market share for home exporting firms. This short-term advantage is mainly attributed to rent, or profit sharing of home firms initially earned by foreign firms in home market. These results offer strong economic support for the strategic export policy, yet to be formulated in India, or justification for the current export policy if only the subsidized exporting domestic firms behaviour is strategic, and provide the economic basis for empirical estimation of export earnings by a strategic export subsidization policy as compared to the existing nonstrategic policy.
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