Determinants of Trade Flows and the Effects of Subsidies

Abstract

Some of the likely effects of public subsidies on internal resource allocation were discussed in the preceeding Chapter. It is now appropriate to concentrate attention on the prime issue of the study, namely what effects may the pattern of government assistance, detailed in Chapter 3, be expected to produce on international trade flows? At first glance, these effects might be expected to be minimal, since the study is concerned only with subsidies of a domestic nature aimed at manufacturing industry. Subsidies aimed entirely at the encouragement of exports or of import-substitution are outside the terms of reference, while agricultural subsidies, which probably account for the greatest part of the distortion of world trade, are also excluded. (These last are dealt with in another study for the Trade Policy Research Centre, D. Gale Johnson’s World Agriculture in Disarray, published in 1973.)