Industrial Policy
Paper Session
Saturday, Jan. 4, 2025 8:00 AM - 10:00 AM (PST)
- Chair: Gordon Hanson, Harvard Kennedy School
Decentralized Industrial Policy
Abstract
Many industrial policies were enacted by local governments. Decentralizing government intervention can undermine policy effectiveness if the local and aggregate welfares are misaligned. In this paper, we extend the closed-economy analysis in Liu (2019) to a multi-region setting with inter-regional trade and input-output linkages. We derive sufficient statistics for the regional and aggregate welfare impacts of industrial policy. Using China's cross-province input-output table, we show there is significant divergence between the incentives of the central and a provincial government: while the nation may benefit from promoting upstream sectors, regional economies benefit from “import substitution” policies that improve terms-of-trade but may harm the nation. Our central and local sufficient statistics predict policies enacted by the respective governments. The predictive power for local industrial policies improves in the regions with more fiscal autonomy. Adopting industrial policies aligned with central sufficient statistics can double the aggregate welfare gain by industrial policies aligned with local sufficient statistics.The Who, What, When, and How of Industrial Policy: A Text-Based Approach
Abstract
Since the 18th century, policymakers have debated the merits of industrial policy (IP). Yet, economists lack basic facts about its use. This study sheds light on industrial policy by measuring and studying global policy practice for the first time. We first create an automated classification algorithm for categorizing industrial policy practice from text. We then apply it to a global database of commercial policy descriptions and quantify policy use at the country, industry, and year levels (2009-2020). These data allow us to study fundamental policy patterns across the world. We highlight four findings. First, IP is common (25% of policies in our database) and has expanded since 2010. Second, instead of blunt tariffs, IP is granular and technocratic. Countries tend to use subsidies and export promotion measures, often targeted at individual firms. Third, most countries engaged in IP tend to be wealthier (top income quintile) liberal democracies. In our data, IP is rarer among the poorest nations (bottom quintile). Fourth, IP is targeted toward a subset of industries and is highly correlated with an industry’s revealed comparative advantage. We show that industrial policy is a prominent feature of the global economy and a far cry from industrial policies of the past.How Do Industrial and Place-Based Policies Work?
Abstract
Industrial and place-base based policies are back in vogue. In the U.S., local, state, and federal government actors have expanded efforts to recruit large companies, invest in low-income communities, promote small business, and train workers. Although recent literature provides causal analysis of specific policy interventions, we still know little about the overall design and implementation of industrial and place-based policies, the magnitude and targeting of policy resource flows, and the coordination of policies across levels of government. Using newly constructed data on industrial and place-based policies in the U.S. over the last 25 years, we (1) chart policy resource flows across industries and regions, (2) identify the local, state, and federal actors that manage the flows, and (3) estimate the implied policy functions that allocate the flows. Although there is wide regional variation in policy experimentation, funding for most policies tends to concentrate in already successful regions. This outcome appears to be the result of the fragmentation of policy responsibility across government agencies and federal spending rules that effectively penalize regions with low administrative capacity.JEL Classifications
- L5 - Regulation and Industrial Policy
- O2 - Development Planning and Policy