A Comparative study of subsidies in selected sectors across developing economies

Abstract

Strategic trade policies rely on subsidies as a powerful tool to maximize the level of domestic social welfare. Subsidies are widely regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. However the market distortions caused by these subsidies need to be evaluated to check for the effects on productivity and free competition. Market distortion can be defined as any deviations that occur from equilibrium price levels that would have prevailed in the case of perfect competition. Prior research on the area of effectiveness of subsidies have revealed that the distortionary effects are more pronounced in the case of developing economies such as India rather than developed economies. A similar study that focuses on developing economies in specific sectors would be beneficial in drawing meaningful inferences regarding effective subsidy policies. For the purpose of this paper, subsidies in the sectors of solar energy and IT hardware/software were studied.