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.
The Market Implications of Industrial Subsidies
