Working Paper: NBER ID: w18694
Authors: Bruce Blonigen
Abstract: Industrial policies (IPs) include such varying practices as production subsidies, export subsidies, and import protection, and are commonly used by countries to promote targeted sectors. However, such policies can have significant impacts on sectors other than those targeted by the IPs, particularly when the target sector produces goods that are key inputs to downstream sectors. Surprisingly, there has been little systematic analysis of how IPs in targeted sectors affect other sectors of the economy. Using a new hand-collected database of steel-sector IP use in major steel-producing countries from 1975 through 2000, this paper examines whether steel-sector IPs have a significant impact on the export competitiveness of the country's other manufacturing sectors, particularly those that are significant downstream users of steel. I find that a one-standard-deviation increase in IP presence leads to a 3.6% decline in export competitiveness for an average downstream manufacturing sector. But this effect can be as high as 50% decline for sectors that use steel as an input most intensively. These general negative effects of IPs are primarily due to export subsidies and non-tariff barriers, particularly in less-developed countries.
Keywords: industrial policy; export performance; steel sector; downstream sectors
JEL Codes: F13; F14; H25; H81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ip presence (F50) | export competitiveness (F14) |
| ip presence (F50) | input costs for downstream sectors (L79) |
| input costs for downstream sectors (L79) | export competitiveness (F14) |
| ip presence (intensive use) (O34) | export competitiveness (F14) |
| developed countries vs less-developed countries (O10) | export competitiveness (F14) |