Research

Beyond Nationality: Domestic Embeddedness and Industrial Subsidies

Governments routinely subsidize foreign firms, even as industrial policy is justified in terms of national economic development. I argue that subsidy support depends not simply on firm nationality but on domestic embeddedness—the extent to which firms generate visible domestic economic benefits. Using firm-level data on U.S. subsidies from 2000–2023, I show that foreign firms receive fewer and substantially smaller subsidies, but this disadvantage narrows among labor-intensive firms. Foreign supplier dependence, by contrast, does not reduce government support. Two preregistered survey experiments show that citizens similarly prioritize domestic economic contributions: foreign workforces and suppliers substantially reduce support regardless of firm nationality, while the effect of nationality is smaller and less consistent. Together, the findings show that governments and citizens both look beyond nationality, particularly to domestic employment, although they weigh supply chains differently. Industrial policy therefore navigates economic interdependence by defining which activities of globally integrated firms count as sufficiently domestic to warrant public support.