PT Journal
AU Du, J
   Girma, S
   Görg, H
   Stepanok, I
TI Who wins and who loses from state subsidies?
SO Canadian Journal of Economics/Revue canadienne d'économique
PY 2023
VL 56
IS 3
PU Wiley
DI 10.1111/caje.12644
WP https://macau.uni-kiel.de/receive/macau_mods_00004162
LA en
DE subsidization; firm model; competitive environment; non-subsidized firms
SN 0008-4085
AB China is perceived to rely on subsidizing firms in targeted industries to improve their performance and stay competitive. We implement an approach that allows for the joint estimation of direct and indirect effects of subsidies on subsidized and non-subsidized firms. We find that firms that receive subsidies experience a boost in productivity. However, our approach highlights the importance of indirect effects, which are generally neglected in the literature. We find that, in general but not always, non-subsidized firms experience reductions in their productivity growth if they operate in a cluster where other firms are subsidized. These negative externalities depend on the share of firms that receive subsidies in the cluster. Aggregating direct and indirect effects into a (weighted) total effect shows that this negative indirect effect tends to dominate. We interpret our results in light of a simple heterogenous firm model, which highlights that subsidization in a competitive environment of firms may potentially harm non-subsidized firms.
PI Boston, MA.; Toronto; Boston, Mass. [u.a.]
ER