KCG Working Paper No. 20: Subsidies, Spillovers and Exports

Authors: Sourafel Girma, Holger Görg and Ignat Stepanok

We ask whether production related subsidies have a role to play in explaining Chinese firms’ export performance. We, firstly, implement an estimation approach that allows for both direct and indirect (“spillover”) effects of the subsidy on the probability to export. Secondly, our approach enables us to allow these two effects to differ depending on the share of firms that already receive subsidies in a well-specified cluster. These two issues have, to the best of our knowledge, not been considered in evaluations of subsidies on export performance. Our estimation results provide a sobering assessment of the role of production related subsidies in stimulating export performance.