Promoting industries in the global economy: subsidies in OECD countries, 1989 to 1995

Subsidies have become increasingly important tools of industrial policy due to the gradual liberalization of trade and finance. However, there is considerable variation in the level of subsidies granted by governments of industrialized countries. This article explores domestic and international factors that affect levels of government support to industry in Organization for Economic Co-operation and Development (OECD) countries in the period 1989 to 1995. The results indicate that higher unemployment leads to higher levels of subsidies, while European Union membership and high levels of economic openness lead to lower levels of subsidies. Contrary to theoretical expectations, upcoming elections are associated with lower levels of subsidies.