AN ANALYSIS OF WELFARE EFFECTS OF EXPORT CREDIT INSURANCE AND GUARANTEES ON THE EXPORTING AND IMPORTING COUNTRIES

Paul Rienstra-Munnicha
Haile Selassie
South Carolina State University
Calum Turvey
Cornell University
ABSTRACT
The purpose of this study is to develop an economic framework to analyze welfare
impacts of the Officially Supported Export Credit Programs (OSECPs) using a partial equilibrium
approach. The framework emphasizes on different non-payment risks (NPRs) when selling at
domestic market versus foreign market and makes an effort to measure the subsidy cost of an
OSECP and to compare it with the cost of a direct export subsidy.
The results are as follows. The supply curve of the exporting country bends away from its
benchmark supply curve, starting at the autarky equilibrium point when NPRs are not identical
between two markets. The more bending means less output is produced and increases more
welfare loss. When an OSECP is used to unwire the bending export supply curve to be closer to
the benchmark export supply, welfare loss is recovered. Such recovery welfare loss incurs
subsidized cost, which is at the expense of tax payers of the exporting country. However, the
subsidized cost of an OSECP is less than the cost of using a direct export subsidy. Moreover, the
use of an OSECP improves net welfare of the exporting and importing countries while the use of a
direct export subsidy reduces their net welfare.