Industrial Policy and Downstream Export Performance

Abstract

Industrial policies (IPs) are commonly used by countries to promote targeted sectors but may have significant impacts on downstream sectors. Using a new hand-collected database of steel-sector IP use in major steel-producing countries, I find that IP use is quite harmful to downstream sectors. A 1 standard deviation increase in steel IP presence leads to a 1.2% decline in export competitiveness for the average downstream manufacturing sector in the first few years of its application, and a 6% decline for downstream sectors that use steel most intensively. These results are largely driven by the less-developed countries in my sample.