Domestic sale requirement, price supports, export quota, and inefficiencies

Export tax and export quota are traditional policies used by developing countries to restrict exports. However, a new breed of export control policy, namely domestic sale requirement, is pursued by some developing countries. According to this policy, a certain percentage of the output is required to be sold in the domestic market and only the remaining production can be exported. Indonesia has undertaken this policy in addition to subsidizing domestic sales of crude oil to benefit the consumers. This study analyzes the effects of these two policies on prices, quantities, and welfare, and compares these effects to those of export quota. The results show that the domestic sale requirement-cum-subsidy policies are clearly inferior to free trade but superior to export quota, because under these policies, unlike under the export quota, supply is allowed to respond to world market prices.