On Monday November 24th, Lidia Smitkova, from the University of Oxford, will present at the UCL CNET seminar.  Lidia is a postdoctoral research fellow at Nuffield College and the Department of Economics at the University of Oxford. Her research interests are trade, international macroeconomics, structural change and economic history. 

Title: Export Subsidies as Industrial Policy: the Case of the 19th Century Sugar Industry

Abstract:

Can export subsidies spur technological upgrading? What are their welfare implications? We build a model in which firms select into exporting and can pay to upgrade technology. An export subsidy can induce upgrading by increasing exporters' scale, making upgrading worthwhile. Despite this, we show that an export subsidy is not generally welfare-improving.  Absent spillovers -- whereby social benefits from upgrading exceed private -- adoption is efficient. With spillovers, welfare effect comprises: (i) a positive term from moving the adopter share toward the social optimum, and (ii) an allocative term whose sign depends on whether the subsidy alleviates or aggravates pre-existing misallocation. We test the model using a natural experiment in the nineteenth-century Austro-Hungarian beet-sugar industry: an 1864 consumption-tax reform unintentionally created a 12\% export subsidy as the industry transitioned to new sugar-extraction technology. Newly digitized factory-level data show that the subsidy reallocated production toward high-export-access regions, whose factories adopted frontier technology earlier. Complementary evidence from France documents positive local spillovers. Calibrating the model to Austro-Hungarian data, we find the subsidy increased adoption but exceeded the optimum, reducing welfare. In turn, by worsening misallocation caused by the pre-existing protective tariff any positive export subsidy would have been counterproductive.