The causal effects of regional industrial policies on employment: A synthetic control approach

Industrial policies affecting entire sectors in regions, provinces, or districts can account for large portions of sub-national government spending. Yet because of the methodological challenges related to the identification of a counterfactual when a single unit is treated, the causal effects of these policies on the growth of the industry, or specifically on employment, are seldom identified. We adopt a Synthetic Control Method (SCM) approach to analyze the long-term impact on employment of the Tourism Development Policy (TDP) implemented by the Argentinean province of Salta. We find an 11 percent average annual impact over 10 years on employment in the hospitality sector, which translated in an accumulated impact of 1376 formal jobs in the tourism value-chain. We also find that this growth did not happen at the expenses of other industries and that TDP generated positive inter-industry employment spillovers/externalities. For each job created in the tourism value-chain, an additional job was created in the rest of the provincial economy, which resulted in a total creation of 2750 formal jobs. Our results are robust across a series of placebo tests and sensitivity checks and are consistent among alternative synthetic control units.