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Industrial Policy and Competition

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  • Aghion, Philippe
  • Dewatripont, Mathias
  • Du, Liqun
  • Harrison, Ann
  • Legros, Patrick

Abstract

The economic slowdown in the 70s in Latin America and Japan in the late 90s, generated a growing skepticism about the role of industrial policy in the process of economic development. Yet, new considerations have emerged over the recent period, which invite us to revisit the issue. This paper argues that sectoral state aids tend to foster productivity, productivity growth, and product innovation to a larger extent when it targets more competitive sectors and when it is not concentrated on one or a small number of firms in the sector. Using a theoretical framework in which two firms may choose either to operate in the same "higher-growth" sector or in different, "lower-growth" sector. We use a panel of medium and large Chinese enterprises for the period 1998 through 2007 to test for complementarity between competition and industrial policy. A main implication from our analysis is that the debate on industrial policy should no longer be for or against having such a policy. As it turns out, sectoral policies are being implemented in one form or another by a large number of countries worldwide, starting with China. Rather, the issue should be on how to design and govern sectoral policies in order to make them more competition-friendly and therefore more growth-enhancing.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8619.

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Date of creation: Nov 2011
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Handle: RePEc:cpr:ceprdp:8619

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Keywords: application fees; competition; industrial policy; innovation and productivity; intellectual property policy; patent system; renewal fees;

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References

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  1. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  2. Hausmann, Ricardo & Rodrik, Dani, 2002. "Economic Development as Self Discovery," CEPR Discussion Papers 3356, C.E.P.R. Discussion Papers.
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Cited by:
  1. Lionel Nesta & Francesco Vona & Francesco Nicolli, 2012. "Environmental Policies, Product Market Regulation and Innovation in Renewable Energy," Working Papers 2012.90, Fondazione Eni Enrico Mattei.
  2. Anderson, Kym & Bruckner, Markus, 2012. "Distortions to Agriculture and Economic Growth in Sub-Saharan Africa," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124908, Agricultural and Applied Economics Association.
  3. Crafts, Nicholas, 2012. "Creating Competitive Advantage: Policy Lessons from History," CAGE Online Working Paper Series 90, Competitive Advantage in the Global Economy (CAGE).
  4. Harald Sander, 2011. "What Can Be Learned from “Green Growth Diagnostics” for Greening the Growth Path of China? - Conceptional Issues and Industry Evidence," Working Papers 2011/23, Maastricht School of Management.
  5. repec:cep:cepsps:24 is not listed on IDEAS
  6. Dominika Langenmayr & Andreas Haufler & Christian J. Bauer, 2012. "Should tax policy favor high- or low-productivity firms?," Working Papers 130, Bavarian Graduate Program in Economics (BGPE).
  7. Corry, Dan & Valero, Anna & Van Reenen, John, 2011. "UK economic performance since 1997: growth, productivity and jobs ," Open Access publications from London School of Economics and Political Science CEPSP24, London School of Economics and Political Science.
  8. Laura Alfaro & Maggie X. Chen, 2012. "Market Reallocation and Knowledge Spillover: The Gains from Multinational Production," Harvard Business School Working Papers 12-111, Harvard Business School, revised Jun 2013.
  9. Devlin, Robert & Moguillansky, Graciela, 2012. "What's new in the new industrial policy in Latin America ?," Policy Research Working Paper Series 6191, The World Bank.
  10. World Bank, 2012. "From Political to Economic Awakening in the Arab World : The Path of Economic Integration - Deauville Partnership Report on Trade and Foreign Direct Investment, Volume 1. Overview Report," World Bank Other Operational Studies 11886, The World Bank.

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