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The Plant-Level View of an Industrial Policy: The Korean Heavy Industry Drive of 1973

Minho Kim, Munseob Lee and Yongseok Shin

No 29252, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Does industrial policy work? This is a subject of long-standing debates among economists and policymakers. Using newly digitized microdata, we evaluate the Korean government's policy that promoted heavy and chemical industries between 1973 and 1979 by cutting taxes and building new industrial complexes for them. We show that output, input use, and labor productivity of the targeted industries and regions grew significantly faster than those of non-targeted ones. While the plant-level total factor productivity also grew faster in targeted industries and regions, the misallocation of resources within them got significantly worse, especially among the entrants, so that the total factor productivity at the industry-region level did not increase relative to the non-targeted industries and regions. In addition, we provide new evidence on how industrial policy reshapes the economy: (i) The establishment size distribution of targeted industries and regions shifted to the right with thicker tails due to the entry of large establishments and (ii) the targeted industries became more important in the economy's input-output structure in the sense that their output multipliers increased significantly more.

JEL-codes: E24 O14 O25 O53 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-eff, nep-his, nep-isf, nep-mac and nep-ure
Note: EFG
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Citations: View citations in EconPapers (1)

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