EXPORT SUBSIDIES AND PROFIT-SHIFTING IN VERTICAL MARKETS

This study examines the interaction between export subsidies and profit-shifting in a vertical production system consisting of agricultural commodity production, and intermediate and final good processing, where the latter two stages may be characterized by imperfect competition. Using a model with general functional forms for demand, comparative statics indicate that an export subsidy to an unprocessed agricultural commodity, under certain circumstances, can have greater profit-shifting effects at the final processing stage compared to an export subsidy targeted at the final processed good.