Empirically Analyzing the Impacts of U.S. Export Credit Programs on U.S. Agricultural Export Competitiveness

(b) The Marshallian Demands with the Presence of Export Credits

In contrast, if the consumer in the importing country receives secondary benefits
from an export credit program, his/her budget constraint is likely to be affected due to the
cost saving on the import payment. From above discussion, this study presumes that the
consumer views his/her cost saving on the import payment as being discounted. Thus,
his/her budget constraint can be formulated as:

(6)        P_1fC_1f-d(P_1fC_1f)+P_2fC_2f=I_f

⇒P_1f(1-d)C_1f+P_2fC_2f=I_f

Note that ‘d’ refers to the fixed discount rate discussed above¹⁴. The range of the subsidy
element is assumed to take on the value of 0 ≤ d < 1 . If d = 0 , this implies that there is
no discount on the import payments; thus, the budget constraint formulated in equation
(6) is just the same as the budget constraint in equation (3b). If d = 1 , then there is a full
discount such as for aid relief, which implies that consumption of good 1 is not an
optimization choice for the consumer in the importing country. Thus, this study assumes
that d < 1 .

By applying a similar utility maximization procedure, , the Marshallian demands
of goods 1 and 2 can be obtained as:

¹⁴ See Rienstra-Munnicha (2004) for more detailed formulation of this budget constraint.

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