This paper investigates whether the government of a small developing country would do better giving a subsidy or depreciating the exchange rate, in order to promote exports. It is shown that while the two examined trade policies give rise to the same highest welfare, they could produce some significant differences according to circumstances.

 

The paper was submitted in October 1998 at the Institute for Advanced Studies (IAS) of Vienna as a Final Paper.

It was published in the Economic Series No.75 of the IAS in October 1999 as a Working Paper.

JEL Classifications F13, F31.

 

Document in PDF format. 

 

A shorter version of this paper was published as: 

 

Gschwandtner, A. “Comparing two different trade policy tools”, Romania joining the European Union: The fight with time, 2004, Vol. I, 499-507. Editura Economica, Bucharest, Romania.