Learning by Doing, Export Subsidies, and Industry Growth: Japanese Steel in the 1950s and 1960s

The paper examines the Japanese steel industry in the 1950s and 1960s to evaluate the role of export subsidy policies. Export subsidies can be instrumental in increasing an industry's cost competitiveness in the presence of learning by doing, a characteristic of production in the steel industry. The proposed approach addresses identification issues found in the literature. Using a dynamic estimation model, this paper identifies a significant learning rate of above 20%. It also finds little intra-industry knowledge spillover, an observation consistent with the nature of the Japanese employment system at that time. Simulations made with the model indicate that the subsidy policy had an insignificant impact on industry growth. The paper provides underlying economic reasons for the simulation results.