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The Market Implications of Industrial Subsidies

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  • OECD

Abstract

The growing use of industrial policy by governments raises questions about the implications of government subsidies for firm behaviour, competition, and international markets. This report uses econometric methods to test for the causal impacts of government subsidies on several firm performance indicators for large manufacturing companies, drawing on the confidential OECD MAGIC database. The analysis finds that subsidies increase firms’ global market shares but have no or negative impacts on investment and productivity. These findings suggest that the subsidy-induced market share gains identified in the analysis do not arise from efficiency gains. Instead, this relationship could result from the ability of firms receiving subsidies to lower their prices or deter competitors from making investments. The estimated effects do appear to differ across subsidy types and various characteristics of firms.

Suggested Citation

  • Oecd, 2025. "The Market Implications of Industrial Subsidies," OECD Trade Policy Papers 296, OECD Publishing.
    • Handle: RePEc:oec:traaab:296-en
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    More about this item

    Keywords

    Government support; Industrial policy; Investment; Productivity;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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