Enhancing Aggregate Productivity Through Export Subsidy

Since the WTO began, export subsidies are primarily prohibited. This paper aims to investigate whether there exists a mechanism to lift national welfare through enhancing aggregate industry productivity where export subsidy can serve as an incentive. A scheme can be contrived not for increasing the total amount of exports quantitatively but for enhancing aggregate industry productivity qualitatively. According to Melitz (2003), access to trade liberalization should positively affect aggregate industry productivity. Theoretically, this paper showed that aggregate industry productivity can be enhanced through a tactic which arouses competition among firms for export subsidy. Notably, redistribution of collected taxes for rewarding more productive firms can encourage the entire industry. With redistribution, any dispute can be avoided because there is no realized market extortion. In the context of the world, it can be a case that a country might have an industry struggling from inefficient production. For example, the agricultural industry in Korea is relatively less robust to trade liberalization than other industries. In this case, export subsidy as an incentive scheme can be a solution for enhancing aggregate industry productivity. KCI Citation Count: 4