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Foreign Subsidization and Excess Capacity

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  • Bruce A. Blonigen
  • Wesley W. Wilson

Abstract

The U.S. steel industry has long held that foreign subsidization and excess capacity has led to its long-run demise, yet no one has formally examined this hypothesis. In this paper, we incorporate foreign subsidization considerations into a model based on Staiger and Wolak’s (1992) cyclical-dumping framework and illustrate testable implications of both cyclical excess capacity and structural excess capacity stemming from foreign subsidization. We then use detailed product- and foreign country-level data on steel exports to the U.S. market from 1979 through 2002 to estimate these excess capacity effects. The results provide strong evidence of both cyclical and structural excess capacity effects for exports to the U.S. market. However, the effects are confined to such a narrow range of country-product combinations that it is unlikely that such effects were a significant factor in the fortunes of U.S. steel firms over the past decades.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11798.

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Date of creation: Nov 2005
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Publication status: published as Blonigen, Bruce A. & Wilson, Wesley W., 2010. "Foreign subsidization and excess capacity," Journal of International Economics, Elsevier, vol. 80(2), pages 200-211, March.
Handle: RePEc:nbr:nberwo:11798

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  1. Sharon Oster, 1982. "The Diffusion of Innovation among Steel Firms: The Basic Oxygen Furnace," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(1), pages 45-56, Spring.
  2. Lenway, Stefanie & Morck, Randall & Yeung, Bernard, 1996. "Rent Seeking, Protectionism and Innovation in the American Steel Industry," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(435), pages 410-21, March.
  3. Robert W. Staiger & Frank A. Wolak, 1990. "The Effect of Domestic Antidumping Law in the Presence of Foreign Monopoly," NBER Working Papers 3254, National Bureau of Economic Research, Inc.
  4. Dunlevy, James A, 1980. "A Test of the Capacity Pressure Hypothesis within a Simultaneous Equations Model of Export Performance," The Review of Economics and Statistics, MIT Press, vol. 62(1), pages 131-35, February.
  5. Yamawaki, Hideki, 1984. "Market structure, capacity expansion, and pricing : A model applied to the Japanese iron and steel industry," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 2(1), pages 29-62, March.
  6. Michael O. Moore, 1996. "The Rise and Fall of Big Steel’s Influence on U.S. Trade Policy," NBER Chapters, in: The Political Economy of Trade Protection, pages 15-34 National Bureau of Economic Research, Inc.
  7. Crandall, Robert W., 1996. "From competitiveness to competition : The threat of minimills to large national steel companies," Resources Policy, Elsevier, Elsevier, vol. 22(1-2), pages 107-118.
  8. Morck, Randall & Sepanski, Jungsywan & Yeung, Bernard, 2001. "Habitual and Occasional Lobbyers in the U.S. Steel Industry: An EM Algorithm Pooling Approach," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 39(3), pages 365-78, July.
  9. Aaron Tornell, 1997. "Rational Atrophy: The U.S. Steel Industry," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1806, Harvard - Institute of Economic Research.
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Cited by:
  1. Chad P. Bown, 2004. "How Different Are Safeguards from Antidumping? Evidence from US Trade Policies Toward Steel," Econometric Society 2004 North American Summer Meetings, Econometric Society 434, Econometric Society.
  2. Bruce Blonigen & Benjamin Liebman & Wesley Wilson, 2013. "Antidumping and Production-Line Exit: The Case of the US Steel Industry," Review of Industrial Organization, Springer, Springer, vol. 42(4), pages 395-413, June.
  3. Bruce A. Blonigen & Benjamin H. Liebman & Wesley W. Wilson, 2007. "Trade Policy and Market Power: The Case of the US Steel Industry," NBER Working Papers 13671, National Bureau of Economic Research, Inc.
  4. Blum, Bernardo S. & Claro, Sebastian & Horstmann, Ignatius J., 2013. "Occasional and perennial exporters," Journal of International Economics, Elsevier, Elsevier, vol. 90(1), pages 65-74.
  5. Muñoz Sepúlveda, Jesús A., 2014. "Residual exports and domestic demand: an empirical analysis," MPRA Paper 54799, University Library of Munich, Germany.

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