Manufacturing revolutions: Industrial policy and industrialisation in South Korea
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The study examines the impact of industrial policy on industrial development through a canonical intervention. Following a political crisis in 1972, South Korea dramatically altered its development strategy with a new sector-specific policy: the Heavy Chemical and Industry (HCI) drive. With newly digitised data, the study uses the sharp introduction and withdrawal of HCI trade policy and investment incentives to study its impacts. (1) The study shows HCI successfully promoted the evolution of directly treated industries. Next it provides evidence for two key justifications of industrial policy: network and dynamic externalities. (2) Using variation in exposure to policies through the input-output network, the study shows HCI indirectly benefited (non-treated) downstream industry. (3) Finally, the study shows both direct and indirect benefits of HCI persist even after the policy is withdrawn, following the 1979 assassination of President Park. Together, the findings suggest that the temporary drive helped shift the economy into higher value-added activity.
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