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Measuring distortions in international markets: Below-market finance

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  • OECD

Abstract

The support that governments provide to their industrial producers has been a growing source of concern. Much of that support is provided by governments through the financial system, either in the form of below‑market borrowings or below-market equity. To better understand the nature and scale of this support, this report uses publicly available information for 306 of the largest manufacturing firms in 13 industrial sectors, covering the period 2005-19. It finds that below-market borrowings tend to be relatively large in heavy industries, including some that reportedly suffer from excess capacity, while below-market equity returns appear to be more common in high-tech industries such as aerospace and semiconductors. Below-market borrowings also appear to benefit firms with more than 25% government investment relatively more. These findings on below-market finance raise a number of important issues for trade rules, including in relation to transparency and the scope of subsidy disciplines.

Suggested Citation

  • Oecd, 2021. "Measuring distortions in international markets: Below-market finance," OECD Trade Policy Papers 247, OECD Publishing.
    • Handle: RePEc:oec:traaab:247-en
    DOI: 10.1787/a1a5aa8a-en
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    More about this item

    Keywords

    Excess capacity; Government equity; Government support; Loan subsidies; State-Owned Enterprises; Subsidies; Trade;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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