Industrial Policy

In this paper, we develop a heterogeneous agent general equilibrium framework to analyze optimal joint policies of a lockdown and transfer payments in times of a pandemic. In our model, the effectiveness of a lockdown in mitigating the pandemic depends on endogenous compliance. A more stringent lockdown deepens the recession which implies that poorer parts of society find it harder to subsist. This reduces their compliance with the lockdown, and may cause deprivation of the very poor, giving rise to an excruciating trade-off between saving lives from the pandemic and from deprivation. Lump-sum transfers help mitigate this trade-off. We identify and discuss key trade-offs involved and provide comparative statics for optimal policy. We show that, ceteris paribus, the optimal lockdown is stricter for more severe pandemics and in richer countries. We then consider a government borrowing constraint and show that limited fiscal space lowers the optimal lockdown and welfare, and increases the aggregate death burden during the pandemic. We finally discuss distributional consequences and the political economy of fighting a pandemic.

Additional readings:

• Q&A with the authors
• Op-ed in VoxEU

This paper constructed a simple model to illustrate the global supply chain profit sharing and industrial upgrading mechanism, from which it was found that the average profitability distribution in the different supply chain stages was determined by two main factors: (1) the average product of the labor in the firms at each production stage; and (2) the ratio of the output elasticity of capital to the output elasticity of labor in each stage. This paper also proposed a new industrial upgrading mechanism, the ‘inter-supply chain upgrading’, for supply chain firms. Rises in production complexity and increased factor intensity in each production stage were found to be the two essential conditions for the inter-supply chain upgrading. The empirical study results were found to be broadly consistent with the proposed theories.

Convergence, the process by which poorer countries ‘catch-up’ to rich ones in terms of real incomes, is at the core of the promise of the European Union and the Eurozone. It was enshrined in the founding treaty of the EU and is at the center of policy-making today. However, after several decades of strong European growth, convergence across many core countries has come to a halt. Policymaking has focused on promoting greater integration between EU countries and in particular within the Eurozone to foster further convergence but the political gridlock has stopped these initiatives from moving forward. 

Further economic and political integration is not necessary for, and may in fact be orthogonal to, greater convergence in the EU. EU countries have converged at roughly the same rate as non-EU countries since the 1950s, suggesting EU membership is not responsible for convergence. Further, there is no statistically significant difference in the rate of convergence between EA 12 or EA19 members before and after the introduction of the Euro. Finally, many current Eurozone members have converged in the last 10 years suggesting that the Euro structure does not impede convergence. Still, further integration may be desirable in the EU – not least to restore the union to its democratic ideals. 

The only variable that is associated with greater convergence in European countries is value chain integration, particularly upstream integration. Upstream integration is domestic value added embodied in intermediate exports that are re-processed abroad. High upstream integration indicates strong participation in value chains and integration into regional production networks. The level of upstream integration varies tremendously within the EU, going from 10% of GDP in Spain to 28% of GDP in Estonia. Once we control for the level of upstream integration, the rate of converge in European countries goes from 1.25% to 4.5%. 

High growth countries are deeply integrated in sub-regional supply chains within Europe. Europe is often thought of as a single supply chain but, in fact, there are several sub-regional supply chains within Europe. These sub-regional supply chains are based on strong bilateral ties between neighboring countries. Participation in one of these supply chains appears to matter more for growth than integration with any particular country (e.g. Germany) or to any specific region. Participation in these supply chains is independent of EU membership – it is due to historical ties and deliberate national policymaking. 

The EU must put cross-country collaboration at the core Horizon Europe– its €100B mission driven innovation programme – to future-proof European supply chains and reintegrate lagging countries. Horizon Europe is the EU’s bet to become a global technology leader. Leading in technology involves not only innovation but also developing the supply chains of the future that allow innovation to be commercially successful. Horizon Europe will not succeed if innovation spending continues occur in national siloes as it did in the Horizon 2020 programme. The EU must pro-actively manage and integrate innovation efforts across the Union and ensure that commercialization occurs at the EU level. Only then can we hope to achieve both EU technological leadership and convergence within the EU. 

En este estudio se consideraron los productos priorizados en el Reporte de Complejidad Económica de Tabasco y se procedió a evaluar su potencial a partir de un conjunto de consideraciones de mercado. Luego, se agregó el potencial de cada producto en distintas colecciones de producto, y se seleccionó una industria cuya estimulación y desarrollo constituya una apuesta de desarrollo prometedora el estado. Respecto de éste se detallaron algunas estadísticas generales como una forma de evaluar su potencial de crecimiento e impacto para la economía local, estatal y nacional.

Para el objeto de este estudio, el sector industrial escogido para el análisis de cuellos de botella fue el de “Químicos” y, más puntualmente, los productos: “Agentes de limpieza orgánicos (ex. Jabón)”, “Aprestos y aceleradores de tintura”, “Mezclas de sustancias odoríferas”, “Placas fotográficas” y “Tinta”. El desarrollo de esta colección de productos representa una importante oportunidad, la que, a la fecha, los productores mexicanos no han podido aprovechar del todo. Sin embargo, estos productos han presentado un gran dinamismo dentro de México en los años recientes. Entre 2004 y 2014, las exportaciones de México en estos productos se han duplicado, el empleo en los sectores asociados a estos productos ha aumentado un 20%, y el salario promedio en estos sectores ha aumentado entre 40% y 50%.

En este estudio se consideraron los productos priorizados en el Reporte de Complejidad Económica de Campeche y se procedió a evaluar su potencial a partir de un conjunto de consideraciones de mercado. Luego, se agregó el potencial de cada producto en distintas colecciones de producto, y se seleccionó una industria cuya estimulación y desarrollo constituya una apuesta de desarrollo prometedora el estado. Respecto de éste se detallaron algunas estadísticas generales como una forma de evaluar su potencial de crecimiento e impacto para la economía local, estatal y nacional.

Para el objeto de este estudio, el sector industrial escogido para el análisis de cuellos de botella fue el de “Textiles” y, más puntualmente, los productos: “Abrigos para mujeres, de punto”, “Calzoncillos para hombres, de punto”, “Camisas para hombres, de punto”, “Camisas para mujeres”, “Camisas para mujeres, de punto” , “Las demás prendas de vestir, de punto”, “Suéteres (jerseys) y artículos similares, de punto”, “Sostenes y artículos similares”, “Trajes para hombres, de punto”, “Trajes para mujeres, de punto”, “Trajes y pantalones para hombres”, “Trajes y pantalones para mujeres” y “Trapos y cordajes textiles en desperdicios”. El desarrollo de esta colección de productos puede representar una oportunidad. Sin embargo, recientemente las exportaciones de estos productos por parte de México han venido perdiendo espacios en el mercado global, siendo el valor de las exportaciones mexicanas de estos productos en la actualidad menos de la mitad de lo que era en 2004.

En este estudio se consideraron los productos priorizados en el Reporte de Complejidad Económica de Baja California y se procedió a evaluar su potencial a partir de un conjunto de consideraciones de mercado. Luego, se agregó el potencial de cada producto en distintas colecciones de producto, y se seleccionó una industria cuya estimulación y desarrollo constituya una apuesta de desarrollo prometedora el estado. Respecto de éste se detallaron algunas estadísticas generales como una forma de evaluar su potencial de crecimiento e impacto para la economía local, estatal y nacional.

Para el objeto de este estudio, el sector industrial escogido para el análisis de cuellos de botella fue el de “Maquinaria industrial, herramientas y equipo” y puntualmente los productos: “Arboles de transmisión”, “Aparatos para soldar”, “Artículos de grifería para tuberías, calderas, etc.”, “Aparatos para regulación automáticos”, “Bombas para líquidos”, “Calderas para calefacción central” “Contadores de gas, líquido o electricidad”, “Densímetros, termómetros, etc.”, “Lavadoras de ropa”, “Los demás contadores”, “Máquinas de cosechar o trillas”, “Máquinas herramienta para trabajar madera”, “Máquinas para fabricar elementos impresores”, “Máquinas y aparatos para soldar”, “Máquinas y aparatos para trabajar caucho o plástico”, “Máquinas para el procesamiento de tela”, “Partes para máquinas para trabajar maderas o metales” y “Útiles intercambiables para herramientas de mano”. El desarrollo de esta colección de productos presenta oportunidades muy atractivas tanto a nivel nacional como internacional. Más aún, la producción de estos productos ha exhibido un importante dinamismo en el país durante los últimos años. Las exportaciones mexicanas de estos productos han aumentado en valor un 175% durante en el período 2004-2014. Asimismo, el empleo en las industrias asociadas al desarrollo de estos productos ha aumentado más de 35%.

At a time of slow growth in several advanced and emerging countries, calls for more structural reforms are multiplying. However, estimations of the short- and medium-term impact of these reforms on GDP growth remain methodologically problematic and still highly controversial. We contribute to this literature by making a novel use of the non-parametric Synthetic Control Method to estimate the impact of 23 wide-reaching structural reform packages (including both real and financial sector measures) rolled out in 22 countries between 1961 and 2000. Our results suggest that, on average, reforms started having a significant positive effect on GDP per capita only after five years. Ten years after the beginning of a reform wave, GDP per capita was roughly 6 percentage points higher than the synthetic counterfactual scenario. However, average point estimates mask a large heterogeneity of outcomes. Benefits tended to materialise earlier, but overall to be more limited, in advanced economies than in emerging markets. These results are confirmed when we use a parametric dynamic panel fixed effect model to control for the rich dynamics of GDP, and are robust to a variety of alternative specifications, placebo and falsification tests, and to different indicators of reform. 

Special Economic Zones (SEZ) have played an important role in Panama's successful growth story over the previous decade. SEZ have attracted local and foreign investment by leveraging a business-friendly environment of low transaction costs, and created many stable, well-paid jobs for Panamanians. Beyond that, SEZ shall be assessed as place-based policy by their capacity to boost structural transformations, namely attracting new skills and more complex know-how not to be found in the domestic economy.

The aim of this paper is to evaluate the three largest SEZ in Panama:

• Colon Free Zone
• Panama-Pacific
• City of Knowledge

Our results suggest that SEZ have been successful as measured by static indicators, such as foreign investment, job creation and productivity. We also find that SEZ have boosted inflows of high-skill immigrants, who are most likely generating positive knowledge spillovers on Panamanians productivity and wages. However, significant legal instruments and institutional designs are preventing Panama from taking full advantage of the skill variety hosted at the SEZ. Complex immigration processes inhibiting foreigners from transitioning out of the SEZ, a long list of restricted professions and even citizenships considered as a national security concern, are hindering the flow of knowledge, keeping the benefits coming from more complex multinational companies locked inside the gates of SEZ.

After an era of generic support for economic development and innovation, narrowly targeted transformation policy is back on the table. Recent advances in the fields of new industrial policy and transition thinking converge on the idea that achieving structural change requires governments to take an active role in overcoming inertia. Rather than just leveraging R&D investments and setting framework conditions, policy makers are urged to participate in the development of socio-economic systems around particular technologies. Associated policy support typically involves a diverse portfolio of system-specific interventions.

The emergence of transformative policy, in this paper characterized by being selective, process-oriented and multi-instrumental, poses severe challenges to rising standards of public accountability. Evaluation methods for calculating the ‘bang for the buck’ of R&D-leveraging measures are ill-suited when policy mixes are supposed to enact economic transformation. We argue that, in order to see if aptly chosen policy design is bringing about actual change, assessments should gauge policy contributions to building up technological innovation systems (TIS). The TIS-literature provides a concrete but untapped basis for tracking how policy efforts affect conditions favoring the creation and diffusion of new economic activities. This premise leads us to introduce a scheme for structuring analyses concerned with (the links between) the organization, orientation and aggregate impact of transformative policy. We test it in a tentative assessment of the Dutch ‘Topsector approach’.

Besides facilitating continuous policy learning, our assessment scheme also serves to strengthen policy maker’s ability to legitimize the adoption of heterodox economic approaches.