# **4. Results**

Using our method, as outlined above, the global subsidy level is estimated at $289 billion to $353 billion per year, or 0.46–0.56 percent of the countries’ combined gross domestic product (GDP). As a percentage of GDP, this figure rises, shockingly, to 1.59–1.95 percent if only low- and middle-income economies are considered, an amount largely due to the capital subsidies captured in our estimation. Table 4 disaggregates subsidies for CAPEX and OPEX across World Bank regions.

**<u>Table 4 OPEX and CAPEX Subsidies, by Region (2017 $ and average % GDP)</u>**

|<br>**Region**|<br>**OPEX**<br>**Subsidy**<br>**($ billion)**|<br>**CAPEX**<br>**Subsidy**<br>**($ billion)**|<br>**Total**<br>**Subsidy**<br>**($ billion)**|<br>**OPEX**<br>**Subsidy/GDP**<br>**(%)**|<br>**CAPEX**<br>**Subsidy/GDP**<br>**(%)**|**Total**<br>**Subsidy/GDP**<br>**(%)**|
|---|---|---|---|---|---|---|
|_World Bankgeograph _<br>|_ical regions*_<br>||||||
|Africa|4.1–5.1|17.2–21.1|21.4–26.1|0.24–0.30|1.03–1.25|1.28–1.56|
|East Asia and Pacific<br>(without China)|5.0–6.2|18.0–22.0|23.1–28.2|0.22–0.26|0.78–0.96|1.00–1.22|
|Europe and Central<br>Asia|13.1–16.0|45.6–55.8|58.7–71.8|0.33–0.41|1.16–1.42|1.48–1.81|
|Latin America and<br>the Caribbean|23.4–28.6|77.8–95.1|101.2–<br>123.7|0.45–0.55|1.51–1.85|1.96–2.40|
|Middle<br>East<br>and<br>North Africa|10.2–12.5|37.6–46.0|47.9–58.5|0.35–0.43|1.31–1.61|1.66–2.03|
|South Asia (without|2.3–2.8|3.2–3.9|10.9–13.3|0.39–0.47|1.43–1.75|1.82–2.22|
|India)|||||||
|_Advanced and nonadv_<br>|_anced econo_<br>|_mies(as cate_<br>|_gorized by IM_<br>|_F)_<br>|||
|Advanced<br>economies|7.8–9.6|17.6–21.5|25.4–31.0|0.018–0.022|0.036–0.044|0.054–0.066|
|Nonadvanced<br>economies|58.1–71.1|204.9–<br>250.5|263.1–<br>321.6|0.35–0.43|1.24–1.52|1.59–1.95|
|Total|66.0–80.7|222.5–<br>271.9|288.5–<br>352.6|0.11–0.13|0.35–0.43|0.46–0.56|

Source: Authors’ compilation. Note: * Regional estimates exclude “advanced economies,” as categorized by the International Monetary Fund. CAPEX = capital expenditure; GDP = gross domestic product. IMF = International Monetary Fund; OPEX = operating expenditure. Estimates for East Asia and Pacific and nonadvanced economies exclude China, while estimates for South Asia exclude India. Estimates for nonadvanced economies exclude both China and India.

Subsidies of operating costs account for approximately 22 percent of the total subsidy amount both in the full sample and for low- and middle-income economies separately. While our overall estimation is in line with existing literature, most studies systematically underestimate CAPEX subsidies (e.g., no adjustments to the asset base or cost of capital are applied). With its inclusion of full cost-reflective tariffs, our approach is thus a better way to estimate hidden costs.

At around $101 billion to $124 billion per year, Latin America and the Caribbean exhibits the largest amount of subsidy both in absolute terms and as a percentage of GDP (including both operating and capital subsidies). It should be noted, however, that if China were included in our analysis, the East Asia and Pacific region’s total amount of subsidies would be substantially higher. Previous estimates (see Kochhar et al. 2015) that used the price gap approach and included China and India attributed the largest subsidies in nominal terms to Asia, at over $190 billion per year, of which 60 percent was in China alone. Figure 2 displays the magnitude of subsidization as a percent of GDP by region.

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