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Industrial Policy and Competition
Philippe Aghion, Jing Cai, Mathias Dewatripont, Luosha Du, Ann Harrison, and Patrick Legros
American Economic Journal: Macroeconomics. Oct 2015, Vol. 7, No. 4: Pages 1-32

Industrial Policy and Competition†

Philippe Aghion1, Jing Cai2, Mathias Dewatripont3, Luosha Du4, Ann Harrison5 and Patrick Legros6

1Department of Economics, Harvard University, Littauer Center 22, 1805 Cambridge Street, Cambridge, MA 02138, and National Bureau of Economic Research (NBER) (e-mail: )

2Department of Economics, University of Michigan, 611 Tappan Street, 365A Lorch Hall, Ann Arbor, MI 48109 (e-mail: )

3Banque National de Belgique and Université libre de Bruxelles (ECARES), 50 avenue F.D. Roosevelt, C.P. 114-04, 1050 Bruxelles, Belgique (e-mail: )

4China Development Bank, 18 fuxingmen neidajie, xichengqu, Beijing, China 100031 (e-mail: )

5The Wharton School, University of Pennsylvania, 2016 Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104, and NBER (e-mail: )

6Université libre de Bruxelles (ECARES), 50 avenue F.D. Roosevelt, C.P. 114-04, 1050 Bruxelles, Belgium (e-mail: )

Abstract

Using a comprehensive dataset of all medium and large enterprises in China between 1998 and 2007, we show that industrial policies allocated to competitive sectors or that foster competition in a sector increase productivity growth. We measure competition using the Lerner Index and include as industrial policies subsidies tax holidays, loans, and tariffs. Measures to foster competition include policies that are more dispersed across firms in a sector or measures that encourage younger and more productive enterprises. (JEL L11, L25, L52, O14, O25, O47, P31)