An analysis of market-distorting factors in shipbuilding: The role of government interventions

Abstract

This report analyses market-distorting factors in the shipbuilding industry with a focus on government interventions. This paper argues that government interventions in this cyclical industry do more harm than good by exacerbating and prolonging economic downturns through two channels. First, it promotes an over-ordering of vessels through lower delivery time, distorting ship buyers’ investment behaviour. Second, it may maintain unproductive capacity in the market that re-enters a new economic cycle, restarting the vicious circle of industrial excess capacity. Against the background of the global nature of this industry, these channels reinforce the case for effective international disciplines on government interventions. Overall, the mature nature of the shipbuilding industry undermines the need for an active industrial policy, beyond facilitating structural adjustment, and emphasizes the necessity for a horizontal policy approach. The work seeks to provide policy makers with a better understanding of how different factors can contribute to excess capacity.