Foreign subsidization and excess capacity

The US. 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 US market to estimate these excess capacity effects While the full sample results provide evidence of both cyclical and structural excess capacity effects for exports to the U S market, these 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 (C) 2009 Elsevier B.V All rights reserved