Export Subsidies

On this topic, Joseph Stiglitz is hard hitting as usual:
Some 25,000 rich American cotton farmers divide $3 to $4 billion in subsidies among themselves – with most of the money going to a small fraction of the recipients. The increased supply depresses cotton prices, hurting some 10 million farmers in sub-Saharan Africa alone.

...That damage is all the greater when we consider how America’s trade subsidies contributed to the demise of the Doha Round.

Rather than offering to do away with its cotton subsidies, America offered to open up American markets to cotton imports – an essentially meaningless public-relations move that quickly backfired. Owing to its huge subsidies, America exports cotton, and it would import little even if formal barriers are removed.

The rest of his post hits even harder.

Question for the class(es): can you draw a partial-equilibrium diagram analysis of a production subsidy so large that it leads a country that would have imported a good to export it.

Comments

Anonymous said…
Professor, by increase of the subsidy the effect is to shift the supply curve right, and push the equilibrum price down. it will reduce the quatity of imported up to a point the domestic price equal to the world price, this country souldn't have any imported at all, then if you keep shifting the supply curve rightward, this country is starting to exporting this product, but how could the situation you described occurs??
subsidize so much that you have to import a good in order to export it???
10:58 AM
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