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Foreign Subsidization and Excess Capacity

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Author Info
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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Handle: RePEc:nbr:nberwo:11798

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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, vol. 2(1), pages 29-62, March. [Downloadable!] (restricted)
  2. Staiger, Robert W. & Wolak, Frank A., 1992. "The effect of domestic antidumping law in the presence of foreign monopoly," Journal of International Economics, Elsevier, vol. 32(3-4), pages 265-287, May. [Downloadable!] (restricted)
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  3. 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. [Downloadable!] (restricted)
  4. Aaron Tornell, 1997. "Rational Atrophy: The US Steel Industry," NBER Working Papers 6084, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Crandall, Robert W., 1996. "From competitiveness to competition : The threat of minimills to large national steel companies," Resources Policy, Elsevier, vol. 22(1-2), pages 107-118. [Downloadable!] (restricted)
  6. Lenway, Stefanie & Morck, Randall & Yeung, Bernard, 1996. "Rent Seeking, Protectionism and Innovation in the American Steel Industry," Economic Journal, Royal Economic Society, vol. 106(435), pages 410-21, March. [Downloadable!] (restricted)
  7. Sharon Oster, 1982. "The Diffusion of Innovation among Steel Firms: The Basic Oxygen Furnace," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 45-56, Spring. [Downloadable!] (restricted)
  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, Oxford University Press, vol. 39(3), pages 365-78, July.
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  1. 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. [Downloadable!] (restricted)
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