Foreign Subsidization and Excess Capacity

42 Pages Posted: 2 Mar 2006 Last revised: 28 Sep 2010

See all articles by Bruce A. Blonigen

Bruce A. Blonigen

University of Oregon - Department of Economics; National Bureau of Economic Research (NBER)

Wesley W. Wilson

University of Oregon - Department of Economics

Date Written: November 2005

Abstract

The U.S. steel industry has long held that foreign subsidization and excess capacity has led to its long-run demise, yet no one has formally examined this hypothesis. In this paper, we incorporate foreign subsidization considerations into a model based on Staiger and Wolak's (1992) cyclical-dumping framework and illustrate testable implications of both cyclical excess capacity and structural excess capacity stemming from foreign subsidization. We then use detailed product- and foreign country-level data on steel exports to the U.S. market from 1979 through 2002 to estimate these excess capacity effects. The results provide strong evidence of both cyclical and structural excess capacity effects for exports to the U.S. market. However, the effects are confined to such a narrow range of country-product combinations that it is unlikely that such effects were a significant factor in the fortunes of U.S. steel firms over the past decades.

Suggested Citation

Blonigen, Bruce A. and Wilson, Wesley W., Foreign Subsidization and Excess Capacity (November 2005). NBER Working Paper No. w11798. Available at SSRN: https://ssrn.com/abstract=851707

Bruce A. Blonigen (Contact Author)

University of Oregon - Department of Economics ( email )

1285 University of Oregon
Eugene, OR 97403
United States
541-346-4680 (Phone)
541-346-1243 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Wesley W. Wilson

University of Oregon - Department of Economics ( email )

1285 University of Oregon
Eugene, OR 97403
United States
541-346-4690 (Phone)

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