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Industrial Policy and South Korea

Summary:
Two new NBER papers discuss industrial policy in South Korea. First one by Jaedo Choi & Andrei A. Levchenko on long term impact of ind policy in South Korea: This paper provides causal evidence of the impact of industrial policy on firms’ long-term performance and quantifies industrial policy’s long-term welfare effects. Using a natural experiment and unique historical data during the Heavy and Chemical Industry (HCI) Drive in South Korea, we find large and persistent effects of firm-level subsidies on firm size. Subsidized firms are larger than those never subsidized even 30 years after subsidies ended. Motivated by this empirical finding, we build a quantitative heterogeneous firm model that rationalizes these persistent effects through a combination of learning-by-doing (LBD) and

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Two new NBER papers discuss industrial policy in South Korea.

First one by Jaedo Choi & Andrei A. Levchenko on long term impact of ind policy in South Korea:

This paper provides causal evidence of the impact of industrial policy on firms’ long-term performance and quantifies industrial policy’s long-term welfare effects. Using a natural experiment and unique historical data during the Heavy and Chemical Industry (HCI) Drive in South Korea, we find large and persistent effects of firm-level subsidies on firm size. Subsidized firms are larger than those never subsidized even 30 years after subsidies ended. Motivated by this empirical finding, we build a quantitative heterogeneous firm model that rationalizes these persistent effects through a combination of learning-by-doing (LBD) and financial frictions that hinder firms from internalizing LBD. The model is calibrated to firm-level micro data, and its key parameters are disciplined with the econometric estimates. Counterfactual analysis implies that the industrial policy generated larger benefits than costs.

If the industrial policy had not been implemented, South Korea’s welfare would have been 22-31% lower, depending on how long-lived are the productivity benefits of LBD. Between one-half and two-thirds of the total welfare difference comes from the long-term effects of the policy.

Second by Minho Kim, Munseob Lee & Yongseok Shin look specifically at ind policy in Heavy and Chemical industries. Some what of a mixed bag here:

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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