The Textbook Case for Industrial Policy: Theory Meets Data [report]

Dominick Bartelme, Arnaud Costinot, Dave Donaldson, Andrés Rodríguez-Clare
2019 unpublished
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
more » ... 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.
doi:10.3386/w26193 fatcat:ukglltxzkrc3hac7rxbj5zuwdy