A Key Driver of Growth and International Competitiveness?
Chapter 10: A case for subsidy?
There are various ways in which governments can protect a domestic industry from foreign competition. These include tariff protection, subsidy, import quotas and public procurement. Such policies might be designed to protect domestic interest groups in the form of firms, scientists and workers in specific industries or they might be designed to increase society’s welfare. Who gains and who loses from subsidies and other trade protection policies? Military aircraft, helicopter and missile industries often receive preferential treatment in government procurement policy (e.g. a policy of buying American, British, Chinese, French or Russian equipment). Within the world civil aircraft market, there has been considerable controversy over subsidies. Airbus has been accused by Boeing of receiving large subsidies whilst Airbus has responded by alleging that the US aerospace industry benefits from US government subsidies through defence contracts. Similar controversy has arisen in the world regional jet airliner markets with claims that Bombardier and Embraer have each received government subsidies. Arguments about state subsidies to national aerospace industries are dominated by myths, emotion and special pleading. Such myths and emotion need to be subject to critical appraisal based on economic analysis and empirical evidence. This chapter considers the economic case for subsidising the aerospace industry.
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