Export Incentives

What Are Export Incentives?

Export incentives are regulatory, legal, monetary, or tax programs that are designed to encourage businesses to export certain types of goods or services. Exports are goods that are produced in one country and are then transported to another country for sale or trade.

Understanding Export Incentives

Export incentives are a form of economic assistance that governments provide to firms or industries within the national economy, in order to help them secure foreign markets. A government providing export incentives often does so in order to keep domestic products competitive in the global market.

Types of export incentives include export subsidies, direct payments, low-cost loans, tax exemption on profits made from exports and government-financed international advertising. While less concerning than import protections such as tariffs, export incentives are still discouraged by economists who claim that they artificially create barriers to free trade and thus can lead to market instability.

The world’s largest exporting countries on a dollar basis are China, the United States, Germany, Japan, and The Netherlands.

How Export Incentives Work

Export incentives make domestic exports competitive by providing a sort of kickback to the exporter. The government collects less tax in order to deflate the exported good's price, so the increased competitiveness of the product in the global market ensures that domestic goods have a wider reach. Generally, this means that domestic consumers pay more than foreign consumers. 

Sometimes, governments will encourage export when internal price supports (measures used to keep the price of a good higher than the equilibrium level) generate surplus production of a good. Instead of wasting that good, governments will often offer export incentives.

Export Incentives and the World Trade Organization

This level of government involvement can also lead to international disputes that may be settled by the World Trade Organization (WTO). As a broad policy, the WTO prohibits most subsidies, except for those implemented by lesser-developed countries (LDCs). The idea is that export protections create market inefficiencies, but that developing countries may need to protect certain key industries in order to promote economic growth and prosperity.