Jaedo Choi, Andrei Levchenko, 09 November 2021

Industrial policy is back on the agenda in high-income countries. This column examines the impact of firm-level industrial policy measures in the 1970s on the South Korean economy. The authors find that South Korea’s heavy and manufacturing industries are an example of where activist industrial policy appears to have succeeded, with the temporary subsidies having a large and statistically significant effect on firm sales as long as 30 years after they ended. However, today’s policymakers face the same challenge as those in the past: identifying conditions – such as dynamic productivity effects or externalities – under which activist industrial policy is welfare-improving. 

Minho Kim, Munseob Lee, Yongseok Shin, 25 October 2021

Industrial policy has divided economists for decades. This column evaluates Korean government's policy of promoting heavy and chemical industries in the 1970s, using plant-level output and productivity data. It shows that output and input use of targeted industries/regions grew significantly faster than those of non-targeted ones. However, total factor productivity did not increase because the misallocation of resources across plants within targeted industries/regions got significantly worse. 

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