Trade policy uncertainty, political connection and government subsidy: Evidence from Chinese energy firms

This paper analyzes the causal relationship between trade policy uncertainty, government subsidies, and the role of political connections using annual data on Chinese energy firms from 2003 to 2018. The results show that when trade policy uncertainty increases, the Chinese government tends to increase subsidies for energy firms, and firms with political ties may receive more subsidies. Furthermore, firms with poor sales performance and in less marketized regions will be granted even more subsidies when uncertainty rises and firms are politically connected. We also observe that subsidies promote firms' fixed asset investments and innovations but decrease their overall investment efficiency. •The effect of trade policy uncertainty on energy firms' government subsidy and the role of political connection are examined.•When trade policy uncertainty rises, the government increases subsidies for energy firms.•Firms with political ties receive more subsidies especially if they have low sales growht or are in less marketized regions.•Subsidies promote firms' investments and innovations, but decrease their overall investment efficiency.•Reductions in trade policy uncertainty may help decrease energy subsidies of transition countries, such as China.