On Optimizing "Gains" from Pakistan's Export Bonus Scheme

Abstract

The Export Bonus Scheme in Pakistan, an export-promotion measure in a regime of exchange controls, preserves protection for the import-competing industries by comparision with devaluation and free trade; for the Scheme is a devaluation at different rates for importers and exporters and provides two different rates of subsidy to exports and import substitutes. Hence in order to ensure that resources do flow into the export sector to the "desire" extent, the discrepancy between the marginal profitabilities of investment in the export sector and the import-substitution sector that the Scheme fails to correct must also be minimized by equalizing the subsidies on exports and those on the production of importables produced at home. For resources will then be optimally allocated by the market between the export sector and the import-substitution sector.