Export Incentives: Definition, Types, and Benefits

What Are Export Incentives?

Export incentives are regulatory, legal, monetary, or tax programs that are designed to encourage businesses to export certain types of goods or services. Exports are goods or services that are produced in one country and then transported to another country for sale or trade.

Exports are an important part of the exporting country's economy, adding to that nation's gross output. Exports can boost sales and profits for a company if the goods create new markets or expand ones that already exist, and may also offer an opportunity to capture global market share. Exports also aid in the creation of jobs as companies expand and grow their workforces.

Understanding Export Incentives

Export incentives are a form of economic assistance that governments provide to firms or industries within the national economy in order to help them secure foreign markets. A government providing export incentives often does so in order to keep domestic products competitive in the global sphere.

Types of export incentives include export subsidies, direct payments, low-cost loans, tax exemption on profits made from exports, and government-financed international advertising. While less concerning than import protections such as tariffs, export incentives are still discouraged by economists who claim that they artificially create barriers to free trade and thus can lead to market instability.

How Export Incentives Work

Export incentives make domestic exports competitive by providing a sort of kickback to the exporter. For instance, a government might give an exporter a tax break to help deflate the price of its exported goods. This in turn increases the competitiveness of the product in the global market and ensures that such exports have a wider reach. Generally, this means that domestic consumers might pay more than foreign consumers for the same product. 

Sometimes, governments will encourage exports when internal price supports (measures used to keep the price of a good higher than the equilibrium level) generate surplus production of a good. Instead of wasting that good, governments will often offer export incentives.

Export Incentives and the World Trade Organization

This level of government involvement can also lead to international disputes that may be settled by the World Trade Organization (WTO). As a broad policy, the WTO prohibits most subsidies, except for those implemented by lesser-developed countries (LDCs). The idea is that export protections create market inefficiencies, but that developing countries may need to protect certain key industries in order to promote economic growth and prosperity.

The Bottom Line

Export incentives are government programs that encourage businesses to exports goods and services. Exports play a critical role in supporting a country's economy, adding to gross output and creating jobs. As such, governments may elect to provide incentives, such as in the form of tax breaks of regulatory relief, to encourage and sustain them. Many economists and regulatory bodies discourage export subsidies on the basis that they create market inefficiencies.