Working Paper: NBER ID: w26193
Authors: Dominick G. Bartelme; Arnaud Costinot; Dave Donaldson; Andrés Rodríguez-Clare
Abstract: The textbook case for industrial policy is well understood. If some sectors are subject to external economies of scale, whereas others are not, a government should subsidize the first group of sectors at the expense of the second. The empirical relevance of this argument, however, remains unclear. In this paper we develop a strategy to estimate sector-level economies of scale and evaluate the gains from such policy interventions in an open economy. Our benchmark results point towards significant and heterogeneous economies of scale across manufacturing sectors, but only modest gains from industrial policy, below 1% of GDP on average. Though these gains can be larger in some of the alternative environments that we consider, they are always smaller than the gains from optimal trade policy.
Keywords: Industrial Policy; Economies of Scale; Trade Policy
JEL Codes: F1; F10; F11; F12; F13; F14; F17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| industrial policy (O25) | GDP gains (F62) |
| sector size (L25) | labor prices (J39) |