Export promotion as a development strategy

This paper has two aims. First it presents a model of the advantages of promoting exports. Second, it warns that in such a model, export promotion may be of benefit only to a limited group of countries. Encouraging others to become outwards oriented may be detrimental to welfare. The fact that, for the exporting sector to be viable, the scale of the exporting sector must be large relative to the optimal scale of exporting firms is advanced as the motivation for export promotion. I then argue that the scale of the exporting sector may, in equilibrium, be a signal of the export good's quality. Large capacities in the sector are required to convince importers to pay high prices. Such high capacities may effectively deter countries capable of producing only low quality goods from subsidizing exports.