STEG Working Paper Research Theme 0: Data, Measurement, and Conceptual Framing, Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy

The Who, What, When, and How of Industrial Policy: A Text-Based Approach

WP050 JuhászLaneOehlsenPérez TheWhoWhatWhenAndHowOfIndustrialPolicy.pdf

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Since the 18th century, policymakers have debated the merits of industrial policy (IP). Yet, economists lack measures and data on its use. We provide a new approach to measuring industrial policy from text and study its global patterns. We create an automated classification algorithm and categorize policies from a global database of commercial policy descriptions, 2009–2020. By quantifying policy at the country, industry, and year levels, we provide a first disaggregate analysis of international industrial policies. We highlight four findings.  First, IP is common (25% of policies in our database) and has expanded since 2010. Second, instead of blunt tariffs, IP is granular and technocratic. Countries tend to use subsidies and export promotion measures, often targeted at individual firms. Third, the countries engaged most in IP tend to be wealthier (top income quintile) liberal democracies. In our data, IP is rarer among the poorest nations (bottom quintile). Fourth, IP is targeted toward a subset of industries and is highly correlated with an industry’s revealed comparative advantage. Our approach to measuring industrial policy shows that contemporary practice is likely much different from the past.

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