Subsidies Effect on the Comparative Advantages of a Country : A Quantitative Analysis on the Effectiveness of Domestic Subsidies on Sector and Product Level

In recent years, countries worldwide have significantly increased the use of subsidies as a central element of their economic strategies. This study aims to quantitatively analyse the effectiveness of domestic subsidies on both product and sector level in creating comparative advantages. Utilizing a comprehensive dataset covering over 100 countries and more than 5000 products and 400 sectors from 2009 to 2022, this research employs Event Study Analysis with fixed effects to assess the impact of subsidies. The study finds evidence that domestic subsidies have a positive effect on comparative advantages on sector level, demonstrating benefits in both short and long term. This suggests that sectors receiving subsidies are better positioned to enhance their competitiveness over time. However, the analysis on product level presents challenges due to the unbalanced panel, where not all countries export every product each year. This imbalance complicates the ability to draw definitive conclusions about the impact of subsidies on individual products, highlighting the need for more granular data and refined methodologies to fully understand these dynamics.