Industrial Policy under Constraints: Evidence from Pakistan’s Export Subsidy Schemes

Stefania Lovo and Gonzalo J. Varela

No 11136, Policy Research Working Paper Series from The World Bank

Abstract: This paper investigates the impact of an export promotion policy consisting of ad-valorem subsidies for a set of targeted products, on the performance of Pakistani exports in the textile sector. The findings show that the policy had a small overall impact on exports, while it induced substantial reallocation of exports across products. The policy induced an increase in exports of traditional products, mostly garments, which were eligible for the highest rebate rates, at the expense of non-eligible or lower-rated products. The paper presents suggestive evidence indicating that the observed effects are partially attributed to shifts in the composition of exporters, through exits and entries alongside capacity constraints. Finally, the evidence shows that the scheme induced strategic misreporting at the border, which contributed marginally to the overall effects.

Date: 2025-06-03
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