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Some causal effects of an industrial policy

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Title: Some causal effects of an industrial policy
Authors: Criscuolo, C
Martin, R
Overman, H
Van Reenen, J
Item Type: Journal Article
Abstract: Business support policies designed to raise employment and productivity are ubiquitous around the world. We exploit changes in the area-specific eligibility criteria for a major program to support manufacturing jobs through investment subsidies (Regional Selective Assistance). European state aid rules determine whether a sub-national geographical area is eligible for these subsidies, and we construct instrumental variables for area (and plant) eligibility based on the estimated parameters of these rule changes. We find areas eligible for higher subsidies significantly increase manufacturing jobs and reduce unemployment. An exogenous ten-percentage point increase in an area’s maximum investment subsidy stimulates about a 9% increase in manufacturing employment. The treatment effect exists solely for small firms – large companies appear to “game” the system, accepting subsidies without increasing activity. There are positive effects on investment and employment for incumbent firms but no effect on Total Factor Productivity.
Issue Date: 1-Jan-2019
Date of Acceptance: 13-Jun-2018
URI: http://hdl.handle.net/10044/1/61327
DOI: https://doi.org/10.1257/aer.20160034
ISSN: 0002-8282
Publisher: American Economic Association
Start Page: 48
End Page: 85
Journal / Book Title: American Economic Review
Volume: 109
Issue: 1
Copyright Statement: © 2019 American Economic Association. All rights reserved.
Keywords: Social Sciences
Economics
Business & Economics
RESEARCH-AND-DEVELOPMENT
REGRESSION DISCONTINUITY DESIGN
LOCAL ECONOMIC-DEVELOPMENT
DEVELOPMENT SUBSIDIES
REGIONAL GRANTS
LEVEL EVIDENCE
INVESTMENT
GROWTH
TAX
INNOVATION
Economics
14 Economics
15 Commerce, Management, Tourism and Services
Publication Status: Published
Online Publication Date: 2019-01-01
Appears in Collections:Imperial College Business School
Centre for Environmental Policy
Faculty of Natural Sciences