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Why might a foreign export subsidy decrease welfare in the foreign country? Why might the foreign...

Why might a foreign export subsidy decrease welfare in the foreign country? Why
might the foreign country provide such a subsidy despite the adverse welfare effect?

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Answer #1

The foreign export subsidy decreases the welfare in the foreign country due to the following reasons

  • There will be a decrease in the welfare of the people as they will have to pay more in the present scenario.
  • On the other hand the producers gain from this move
  • The government incur losses as it has to pay for the subsidy.

The foreign country provide such a subsidy because it boosts the manufacturing sector of the country. Producers gain and they can give an impetus to the economy. There will be job creation and more production of goods and services in the economy.

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