This paper develops a model of a segmented oligopoly market for a small open economy to analyse trade policies in developing countries. In contrast to the standard market segmentation model we assume firms face an infinitely elastic foreign demand while the domestic market is imperfectly competitive and segmented. In a stable equilibrium in such a market all scale economies are fully exploited and all firms who export sell the same amount in the domestic market so that the more efficient firm exports more. We then examine the relative effects of a policy favouring entry and of a policy of export subsidization on the volume of exports and welfare of an economy. We demonstrate that liberalizing entry is more effective in export promotion than export subsidization as it is likely to have an accelerating effect on exports whereas subsidies are likely to have a decelerating effect. Also, for the same increase in exports entry raises government expenditure less than a higher subsidy rate--an important consideration for developing countries with fiscal problems. Furthermore, for the same increase in exports welfare is higher if the increase in exports is achieved through entry than if it is achieved through subsidies.