The Analytics of Export Promotion Policies Designed to Reduce Search Costs

This study examines the economic effects of export subsidy policy in an environment where exporters must expend resources to find foreign consumers. Within a sequential search model we find that export promotion policies specifically designed to lower an exporter’s search costs (e.g., government-sponsored trade missions) have very different effects than non-targeted subsidies. For example, subsidies that lower search costs induce exporters to increase their price. However, this result is sensitive to model specification and may even be reversed when the analysis allows for foreign competition.