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  3. American Economic Review
  4. January 2019
  5. Some Causal Effects of an Industrial Policy

Some Causal Effects of an Industrial Policy

  • Chiara Criscuolo
  • Ralf Martin
  • Henry G. Overman
  • John Van Reenen
American Economic Review
vol. 109, no. 1, January 2019
(pp. 48-85)
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Abstract

We exploit changes in the area-specific eligibility criteria for a program to support jobs through investment subsidies. European rules determine whether an area is eligible for subsidies, and we construct instrumental variables for area eligibility based on parameters of these rule changes. Areas eligible for higher subsidies significantly increased jobs and reduced unemployment. A ten-percentage point increase in the maximum investment subsidy stimulates a 10% increase in manufacturing employment. This effect exists solely for small firms: large companies accept subsidies without increasing activity. There are positive effects on investment and employment for incumbent firms but not Total Factor Productivity.

Citation

Criscuolo, Chiara, Ralf Martin, Henry G. Overman, and John Van Reenen. 2019. "Some Causal Effects of an Industrial Policy." American Economic Review, 109 (1): 48-85. DOI: 10.1257/aer.20160034

Additional Materials

JEL Classification

  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
  • H25 Business Taxes and Subsidies including sales and value-added (VAT)
  • L25 Firm Performance: Size, Diversification, and Scope
  • L52 Industrial Policy; Sectoral Planning Methods
  • R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics