Some Causal Effects of an Industrial Policy

Chiara Criscuolo, Ralf Martin, Henry Overman and John van Reenen

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Business support policies designed to raise employment and productivity are ubiquitous around the world. We exploit changes in the area-specific eligibility criteria for a major program to support manufacturing jobs through investment subsidies (Regional Selective Assistance). European state aid rules determine whether a sub-national geographical area is eligible for these subsidies, and we construct instrumental variables for area (and plant) eligibility based on the estimated parameters of these rule changes. We find areas eligible for higher subsidies significantly increase manufacturing jobs and reduce unemployment. An exogenous ten-percentage point increase in an area's maximum investment subsidy stimulates about a 9% increase in manufacturing employment. The treatment effect exists solely for small firms - large companies appear to "game" the system, accepting subsidies without increasing activity. There are positive effects on investment and employment for incumbent firms but no effect on Total Factor Productivity.

Keywords: industrial policy; regional policy; employment; investment; productivity (search for similar items in EconPapers)
JEL-codes: H25 L52 L53 O25 R11 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (73)

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Related works:
Journal Article: Some Causal Effects of an Industrial Policy (2019)
Working Paper: Some causal effects of an industrial policy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1113

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