The Effects of Export Credit Subsidies on Western Exports to the Soviet Bloc

by Keith Crane, Daniel F. Kohler

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This study uses estimates of Soviet Bloc import elasticities and of the value of credit subsidies on Western loans to the Bloc in 1981 to simulate the impact on OECD exports, if these subsidies had been eliminated in that year. The elasticity estimates indicate that price changes have little bearing on the amount of hard currency spent on a particular commodity by the Soviet Bloc; own price elasticities were close to negative one, cross price elasticities were not significantly different from zero. The pattern of income or expenditure elasticities is somewhat surprising. The expenditure elasticities for food and raw materials appear to be at least as large as for machinery and other manufactured products. If subsidies had been eliminated in 1981, the total decline in OECD exports to the Bloc would have been less than 9 percent. Exports of intermediate and consumer goods, followed by machinery, would have been reduced most in absolute terms (roughly $600 million in each category), but decreases in exports of food and raw materials would have been of roughly the same magnitude. If reductions in imports of each commodity group had been distributed proportionally among OECD suppliers, no country or country group would have experienced more than a 6 percent decline in total exports and none less than 2 percent.

This report is part of the RAND Corporation note series. The note was a product of the RAND Corporation from 1979 to 1993 that reported other outputs of sponsored research for general distribution.

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