The causal effects of an industrial policy

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

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 jobs through investment subsidies. Pan-European state aid rules determine whether a sub-national geographical area is eligible for 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 business support create significantly more jobs (and reduce unemployment), and this is not due to job displacement between eligible and ineligible areas. An exogenous ten-percentage point increase in an area’s maximum investment subsidy stimulates about a 7% 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 net entry of new plants, firm investment but no effects on Total Factor Productivity.

Keywords: industrial policy; regional policy; employment; investment; productivity (search for similar items in EconPapers)
JEL-codes: H25 L52 L53 O47 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2016-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (48)

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http://eprints.lse.ac.uk/58575/ Open access version. (application/pdf)

Related works:
Working Paper: The Causal Effects of an Industrial Policy (2012)
Working Paper: The causal effects of an industrial policy (2012)
Working Paper: The Causal Effects of an Industrial Policy (2012)
Working Paper: The Causal Effects of an Industrial Policy (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:58575

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