OECD Trade Policy Papers

This series is designed to make available to a wider readership selected trade policy studies prepared for use within the OECD.

NB. No. 1 to No. 139 were released under the previous series title OECD Trade Policy Working Papers.


Measuring distortions in international markets: Below-market finance

The support that governments provide to their industrial producers has been a growing source of concern. Much of that support is provided by governments through the financial system, either in the form of below‑market borrowings or below-market equity. To better understand the nature and scale of this support, this report uses publicly available information for 306 of the largest manufacturing firms in 13 industrial sectors, covering the period 2005-19. It finds that below-market borrowings tend to be relatively large in heavy industries, including some that reportedly suffer from excess capacity, while below-market equity returns appear to be more common in high-tech industries such as aerospace and semiconductors. Below-market borrowings also appear to benefit firms with more than 25% government investment relatively more. These findings on below-market finance raise a number of important issues for trade rules, including in relation to transparency and the scope of subsidy disciplines.


Keywords: Excess capacity, State-Owned Enterprises, Loan subsidies, Trade, Subsidies, Government equity, Government support
JEL: G32: Financial Economics / Corporate Finance and Governance / Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill; H25: Public Economics / Taxation, Subsidies, and Revenue / Business Taxes and Subsidies; F23: International Economics / International Factor Movements and International Business / Multinational Firms; International Business; H81: Public Economics / Miscellaneous Issues / Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts; F13: International Economics / Trade / Trade Policy; International Trade Organizations; L33: Industrial Organization / Nonprofit Organizations and Public Enterprise / Comparison of Public and Private Enterprises and Nonprofit Institutions; Privatization; Contracting Out; O25: Economic Development, Innovation, Technological Change, and Growth / Development Planning and Policy / Industrial Policy; L62: Industrial Organization / Industry Studies: Manufacturing / Automobiles; Other Transportation Equipment; Related Parts and Equipment; L52: Industrial Organization / Regulation and Industrial Policy / Industrial Policy; Sectoral Planning Methods
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