Supply Chain Stability and Strategic Investment Subsidies

Since the COVID-19 pandemic, industrial policies adopted by major advanced economies, including the United States, the European Union, and Japan, have brought about significant changes in the global trade environment. Guided by policy objectives such as digital and green transitions, the acquisition of advanced industrial technologies, economic security, and supply chain resilience, these economies have expanded support measures to promote domestic investment in selected industries. These measures include R&D subsidies, production subsidies, and tax incentives, and they apply not only to domestic firms but also to foreign investors. As a result, such policies exert a direct influence on multinational corporations’ overseas investment decisions by altering firms’ cost structures and locational incentives. This has encouraged the geographic reallocation of R&D activities and production facilities, particularly in advanced technology-intensive and strategically important sectors such as semiconductors and batteries. These developments have emerged as a key structural driver reshaping global supply chains around newly favored investment locations. Against this background, this article draws on Yea et al. (2024) to briefly examine how subsidies for investment in so-called strategic industries, which governments deploy to achieve industrial policy objectives, affect multinational enterprises’ foreign direct investment decisions. Yea et al. (2024) theoretically investigate how supply chain stability and uncertainty surrounding the technological capabilities of investing firms interact with the design of government subsidies aimed at attracting multinational investment, using a stylized model of firm decision-making. The following section provides a concise overview of the theoretical framework developed by Yea et al. (2024) and the key implications derived from the model.