UCL Department of Economics


ENTER Seminar - Elisa Navarra (Université Libre de Bruxelles - ECARES)

16 November 2023, 11:00 am–12:00 pm


The Effects of Corporate Subsidies Along Supply Chains

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Cristian Espinosa Diaz

The increasing use of corporate subsidies by governments worldwide raises concerns about their trade-distorting effects. In this paper, I study the trade effects of corporate subsidies, both direct (in subsidised industries) and indirect (in industries connected through input-output linkages). To this end, I use a unique dataset on all federal subsidies introduced by the United States since 2000. I document that, against multilateral trading rules, only a fraction of these subsidies are notified to the World Trade Organization. To identify causal effects, I exploit exogenous political shocks driven by changes in the identity swing states across electoral terms. I find that politically motivated subsidies foster exports in industries directly and indirectly exposed to them. Employment also increases. Contrary to the existing jurisprudence, the positive effects along supply chains stem from increased investments rather than price suppression. My analysis contributes to the ongoing debate about reforming multilateral trading rules on subsidies by advocating enhanced transparency and a broader interpretation of pass-through effects.

Location: Taviton Street 14-16, 230A