Working Paper: CEPR ID: DP12080
Authors: Myrto Kalouptsidi
Abstract: This paper provides a model-based empirical strategy to, (i) detect the presence andgauge the magnitude of government subsidies and (ii) quantify their impact on productionreallocation across countries, industry prices, costs and consumer surplus. I construct andestimate an industry model that allows for dynamic agents in both demand and supply andapply my strategy to world shipbuilding, a classic target of industrial policy. I find strongevidence consistent with China having intervened and reducing shipyard costs by 13-20%,corresponding to 1.5 to 4.5 billion US dollars, between 2006 and 2012. The subsidies led tosubstantial reallocation of ship production across the world, with Japan, in particular, losingsignificant market share. They also misaligned costs and production, while leading to minorsurplus gains for shippers.
Keywords: industry dynamics; government subsidies; china; shipbuilding
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Chinese government subsidies (O38) | reduction in shipyard costs (J32) |
| reduction in shipyard costs (J32) | substantial reallocation of ship production globally (F12) |
| substantial reallocation of ship production globally (F12) | Japan losing significant market share (F69) |
| Chinese government subsidies (O38) | minor surplus gain for shippers (L90) |
| Chinese government subsidies (O38) | overall costs of production increased for the industry (L11) |
| shift in production from lower-cost Japanese shipyards to higher-cost Chinese shipyards (F12) | overall costs of production increased for the industry (L11) |
| Chinese government subsidies (O38) | changes in production costs and market dynamics (L11) |