 The long-term effects of industrial policyJaedo Choi and Andrei A. Levchenko Journal of Monetary Economics, 2025, vol. 152, issue C Abstract: This paper provides causal evidence on the impact of a large-scale industrial policy – South Korea’s Heavy and Chemical Industry (HCI) Drive – on firms’ long-term performance and quantifies its long-term welfare effects. Using unique historical data on the universe of firm-level subsidies and a natural experiment, we find large and persistent effects of this industrial policy. Subsidized firms grew faster than those never subsidized for 30 years after subsidies ended. We build a quantitative heterogeneous firm model that rationalizes these effects through a combination of learning-by-doing and financial frictions. The model is calibrated to firm-level data, and its key parameters are disciplined with the econometric estimates. The HCI Drive generated larger benefits than costs. If it had not been implemented, South Korea’s welfare would have been 3%–4% lower. The majority of the total welfare impact comes from the long-term productivity benefits of learning-by-doing. Keywords: Industrial policy; South Korea; HCI drive; Learning-by-doing; Financial frictions; Welfare (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:152:y:2025:i:c:s0304393225000509 DOI: 10.1016/j.jmoneco.2025.103779 Access Statistics for this article Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser More articles in Journal of Monetary Economics from Elsevier |
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