Export Performance and Export-Import Linkage Requirements

Abstract

This paper examines the resource allocation effects of two policies widely employed by developing countries to improve their trade balances. Compared to free-trade, both export performance and export-import linkage policies may actually worsen the balance of trade unless they are coupled with an import barrier on final goods. Even with such barriers, an export-import linkage policy still may not cause the trade balance to improve. The effects of both policies on a number of domestic variables are discussed. Profit and output of domestic exporters can increase under trade performance policies.