China’s Industrial Policy: an Empirical Evaluation

68 Pages Posted: 10 Jul 2019

See all articles by Panle Jia Barwick

Panle Jia Barwick

Cornell University - Department of Economics

Myrto Kalouptsidi

Harvard University - Department of Economics

Nahim Zahur

Cornell University - Department of Economics

Date Written: July 9, 2019

Abstract

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.

Keywords: Industrial Policy, investment, dynamics, welfare, China

JEL Classification: L1, L5, L6, O2

Suggested Citation

Barwick, Panle Jia and Kalouptsidi, Myrto and Zahur, Nahim, China’s Industrial Policy: an Empirical Evaluation (July 9, 2019). Available at SSRN: https://ssrn.com/abstract=3417181 or http://dx.doi.org/10.2139/ssrn.3417181

Panle Jia Barwick (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

Myrto Kalouptsidi

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Nahim Zahur

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

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