Do Trade and Investment Flows Lead to Higher CO2 Emissions? Some Panel Estimation Results

The positive influence of subsidies on merchandise exports is well known from trade theory literature. However, the empirical evidence on the relationship remains ambiguous. The current study conducts a panel data empirical analysis over 1990–2011 for 140 countries to understand the relationship between their overall budgetary subsidies and aggregate merchandise export inclination. The empirical results of this article lead to three major findings. Firstly, overall budgetary supports in all countries, irrespective of their income level, are positively related with aggregate merchandise export expressed as percentage of GDP. However, the low-income countries witness lesser success vis-à-vis their developed counterparts. Secondly, merchandise imports, FDI inward movement and contribution of the industrial sector in the economy positively influence merchandise export inclination, which partially explains the former result. Thirdly, the importance of government budgetary subsidy reporting procedure on merchandise exports is also emphasized. The findings underline the importance of concluding the Doha Round Negotiations of WTO in general and disciplining of subsidies in particular in no uncertain terms.