Paper

Monday, October 7

Sujin Cha (University of Michigan)

Title: Industrial Policy in a Globalized Economy: Firm Foreignness and US Subsidy Allocation

Abstract: Industrial policy (IP) supports strategically significant industries to serve national interests. In a globalized economy, however, IP benefits often extend to foreign firms, such as the US government’s $6.6 billion subsidy to Taiwan’s TSMC for a project in Arizona. This raises questions about the determinants of IP support distribution, including what explains the allocation of industrial subsidies to firms in a globalized economy. I argue that political incentives drive politicians to support firms to secure backing from businesses and workers and international competition compels governments to favor large domestic firms in key sectors like manufacturing and energy. Using data on US publicly traded firms and industrial subsidies from 2000 to 2023, I find that American firms—especially large ones collaborating with local suppliers and serving American customers—receive more subsidies than foreign ones. This trend has amplified since 2008 amid rising global competition, with large US firms benefiting more than non-US companies. While the discussion on industrial policy often focuses on its effects and consequences, this paper contributes to our understanding of the distribution of industrial policy from both domestic and international perspectives.