Working Paper: NBER ID: w20119
Authors: Myrto Kalouptsidi
Abstract: This paper provides a model-based empirical strategy to, (i) detect the presence and gauge the magnitude of government subsidies and (ii) quantify their impact on production reallocation across countries, industry prices, costs and consumer surplus. I construct and estimate an industry model that allows for dynamic agents in both demand and supply and apply my strategy to world shipbuilding, a classic target of industrial policy. I find strong evidence 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 to substantial reallocation of ship production across the world, with Japan, in particular, losing significant market share. They also misaligned costs and production, while leading to minor surplus gains for shippers.
Keywords: industrial subsidies; shipbuilding; government intervention; China; market share
JEL Codes: L0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Chinese government subsidies (O38) | reduced shipyard costs (R38) |
| reduced shipyard costs (R38) | significant reallocation of ship production globally (F69) |
| significant reallocation of ship production globally (F69) | disadvantaging Japanese shipyards (F14) |
| Chinese government subsidies (O38) | misalignment of production costs and industry prices (L11) |
| misalignment of production costs and industry prices (L11) | minor surplus gains for shippers (L87) |
| reduced shipyard costs (R38) | increased costs in the industry average (L11) |
| significant reallocation of ship production globally (F69) | production shifted from lower-cost Japanese shipyards to higher-cost Chinese facilities (F12) |