In the current recession, millions of Americans have lost their jobs. Unemployment has increased nationwide to levels not witnessed since the 1980s. This issue brief tallies more than 110,000 jobs that have been shed from state and local governments in the last two years. Without the stimulus passed in February of this year, this number would have been much greater.
Contrary to popular perceptions, the United States has a much smaller small-business sector (as a share of total employment) than other countries at a comparable level of economic development, according to this new CEPR report. The authors observe that the undersized U.S. small business sector is consistent with the view that high health care costs discourage small business formation, since start-ups in other countries can tap into government-funded health care systems.
I study the impact of industrial policy on industrial development by considering a canonical intervention. Following a political crisis, South Korea dramatically altered its development strategy with a sector-specific industrial policy: the Heavy Chemical and Industry (HCI) drive, 1973-1979. With newly assembled data, I use the sharp introduction and withdrawal of industrial policies to study the impacts of industrial policy—during and after the intervention period. I show (1) HCI promoted the expansion and dynamic comparative advantage of directly targeted industries. (2) Using variation in exposure to policies through the input-output network, I show HCI indirectly benefited downstream users of targeted intermediates. (3) I find direct and indirect benefits of HCI persisted even after the end of HCI, following the 1979 assassination of the president. These effects include the eventual development of directly targeted exporters and their downstream counterparts. Together, my findings suggest that the temporary drive shifted Korean manufacturing into more advanced markets and created durable industrial change. These findings clarify lessons drawn from South Korea and the East Asian growth miracle.