DP12080 Detection and Impact of Industrial Subsidies: The Case of Chinese Shipbuilding
This paper provides a model-based empirical strategy to, (i) detect the presence and
gauge the magnitude of government subsidies and (ii) quantify their impact on production
reallocation across countries, industry prices, costs and consumer surplus. I construct and
estimate an industry model that allows for dynamic agents in both demand and supply and
apply my strategy to world shipbuilding, a classic target of industrial policy. I find strong
evidence consistent with China having intervened and reducing shipyard costs by 13-20%,
corresponding to 1.5 to 4.5 billion US dollars, between 2006 and 2012. The subsidies led to
substantial reallocation of ship production across the world, with Japan, in particular, losing
significant market share. They also misaligned costs and production, while leading to minor
surplus gains for shippers.
