Goodwill and Export Promotion Dynamics

Federal subsidies for nonprice export promotion of farm products have been criticized on the grounds that they merely substitute taxpayer dollars for private promotional expenditures. This ‘‘displacement hypothesis’’ is tested by estimating export demand and advertising–goodwill relations using time series data for 1975–2008. The displacement hypothesis receives some support in that three of the nine tests show an inverse relationship between industry and government expenditures. However, the remaining tests show no relationship. These results, coupled with the finding of Kinnucan and Cai (2011) that expenditures for export promotion may be too high when consumer impacts are taken into account, suggest it is time to let the Market Access and Foreign Market Development programs operated by the U.S. Department of Agriculture lapse.