The drivers and impacts of subsidies to steel firms

Oecd

No 184, OECD Science, Technology and Industry Policy Papers from OECD Publishing

Abstract: Steel-producing firms in partner economies – and particularly in the People’s Republic of China – receive substantially higher subsidies than their OECD counterparts. Typical Chinese firms receive five times more subsidies per unit of revenue than firms in other partner economies, and ten times more than firms in OECD Member countries. The subsidies covered in this study – namely cash grants, below-market borrowings (BMB), and corporate income tax concessions – are disproportionately directed towards firms with higher government ownership, larger size, and greater indebtedness. In partner economies, sustained annual grants of USD 1 million are associated with capacity increases ranging from 5,000 to 15,000 metric tonnes, while no such effect is observed for OECD countries. BMB also display counter-cyclical characteristics in partner economies, with intensified use during steel crises potentially preventing market-driven capacity adjustments. Outside of crises, a USD 1 million increase in BMB is associated with approximately 1,000 metric tonnes of additional capacity. These findings are based on firm-level econometric analysis using the OECD MAGIC database, covering 47 major steel firms from 2005 to 2022. The results highlight a persistent asymmetry in subsidy practices across jurisdictions and underscore the risks posed by subsidy-driven excess capacity, calling for renewed policy dialogue on transparency, competitive neutrality, and effective subsidy frameworks.

Keywords: below-market finance; cash grants; distortions; excess capacity; government ownership; industrial subsidies; steel industry; tax rebates (search for similar items in EconPapers)
JEL-codes: H25 H32 L52 L61 (search for similar items in EconPapers)
Date: 2025-10-09
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Persistent link: https://EconPapers.repec.org/RePEc:oec:stiaac:184-en

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