Assessing the Impact of Eliminating Export Subsidies in Bangladesh

The debate over export subsidy reform is crucial for many developing countries. This study analyses the impact of reducing or eliminating export subsidies for Bangladesh using a computable general equilibrium framework. Our simulations indicate that the partial removal of export subsidies has a positive effect on GDP. If export subsidies are eliminated only in the RMG sector real GDP increases by 0.04 per cent, which is similar to the full elimination of export subsidies by all sectors – perhaps not surprising given the significant contribution of this sector to GDP and that most subsidies apply to this sector. When export subsidies are reduced by 50 percent, with the funding transferred to seven targeted low-income household groups, real GDP is projected to increase by about 0.81 percent. Government transfers to households lead to an increase in real income for all seven targeted households, especially rural households, where incomes rise on average by 2.5 percent. This study indicates that there are significant inefficiencies and opportunity costs associated with export subsidies, and household income could be enhanced by redirecting the spending to more productive channels. JEL Classification: F14, F17, F47.