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Foreign Subsidization and Excess Capacity


  • Bruce A. Blonigen
  • Wesley W. Wilson


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.

Suggested Citation

  • Bruce A. Blonigen & Wesley W. Wilson, 2005. "Foreign Subsidization and Excess Capacity," NBER Working Papers 11798, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11798
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    References listed on IDEAS

    1. 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.
    2. 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 131-135, February.
    3. 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 410-421, March.
    4. 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.
    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, vol. 2(1), pages 29-62, March.
    6. 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.
    7. Aaron Tornell, 1997. "Rational Atrophy: The U.S. Steel Industry," Harvard Institute of Economic Research Working Papers 1806, Harvard - Institute of Economic Research.
    8. Meredith A. Crowley, 2004. "Antidumping Policy Under Imperfect Competition: Theory and Evidence," Econometric Society 2004 North American Summer Meetings 443, Econometric Society.
    9. 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, vol. 39(3), pages 365-378, July.
    10. 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.
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    Cited by:

    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.
    2. Crampes, Claude & Salant, David, 2018. "A multi-regional model of electric resource adequacy," TSE Working Papers 18-877, Toulouse School of Economics (TSE).
    3. Chad Bown, 2013. "How Different Are Safeguards from Antidumping? Evidence from US Trade Policies Toward Steel," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(4), pages 449-481, June.
    4. Blum, Bernardo S. & Claro, Sebastian & Horstmann, Ignatius J., 2013. "Occasional and perennial exporters," Journal of International Economics, Elsevier, vol. 90(1), pages 65-74.
    5. Muñoz Sepúlveda, Jesús A., 2014. "Residual exports and domestic demand: an empirical analysis," MPRA Paper 58328, University Library of Munich, Germany.
    6. repec:eee:enepol:v:106:y:2017:i:c:p:498-504 is not listed on IDEAS
    7. Muñoz Sepúlveda, Jesús A., 2014. "Residual exports and domestic demand: an empirical analysis," MPRA Paper 54799, University Library of Munich, Germany.
    8. Bruce Blonigen & Benjamin Liebman & Wesley Wilson, 2013. "Antidumping and Production-Line Exit: The Case of the US Steel Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(4), pages 395-413, June.
    9. Antweiler, Werner, 2016. "Cross-border trade in electricity," Journal of International Economics, Elsevier, vol. 101(C), pages 42-51.

    More about this item

    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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