Question

What is the difference between a subsidy granted to import-competing firms and an export subsidy? What is the purpose of each of these subsidies? Who are the beneficiaries (winners) under each of these two types of subsidies? Who pays for each of these two subsidies?

Answer 1

An import-competing firm is a domestic firm that competes with imports. The product that the firm produces can also be imported and hence this firm is competing with it.

Import competing subsidies are given to these firms to be better able to compete with the imports. These subsidies reduce the cost for these firms and increase their sustainability. The purpose is to help the domestic firms against imports.

Export subsidies are the subsidies government gives to domestic firms so that they are better able to export an item. This might be direct subsidy, lower taxes or minimum price programs for those firms etc. These subsidy make the costs lesser for the exporting firm and helps it fight in the international competition. The purpose is the help domestic firms be better exporters.

Government, and hence in turn the tax-payer public, pays for these two subsidies.