NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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China's Industrial Policy: an Empirical Evaluation

Panle Jia Barwick, Myrto Kalouptsidi, Nahim Bin Zahur

NBER Working Paper No. 26075
Issued in July 2019
NBER Program(s):The Development Economics Program, The Industrial Organization Program, The International Trade and Investment Program, The Public Economics Program

Despite the historic prevalence of industrial policy and its current popularity, few empirical studies directly evaluate its welfare consequences. This paper examines an important industrial policy in China in the 2000s, aiming to propel the country's shipbuilding industry to the largest globally. Using comprehensive data on shipyards worldwide and a dynamic model of firm entry, exit, investment, and production, we find that the scale of the policy was massive and boosted China's domestic investment, entry, and world market share dramatically. On the other hand, it created sizable distortions and led to increased industry fragmentation and idleness. The effectiveness of different policy instruments is mixed: production and investment subsidies can be justified by market share considerations, but entry subsidies are wasteful. Finally, the distortions could have been significantly reduced by implementing counter-cyclical policies and by targeting subsidies towards more productive firms.

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Document Object Identifier (DOI): 10.3386/w26075

 
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