Jaedo Choi

Abstract

We study how the adoption of foreign technology and local spillovers from such adoption contributed to late industrialization in a developing country during the postwar period. Using novel historical firm-level data for South Korea, we provide causal evidence of direct productivity gains to adopters and local productivity spillovers of the adoption. Based on these empirical findings, we develop a dynamic spatial model with firms' technology adoption decisions and local spillovers. The spillovers induce dynamic complementarity in firms' technology adoption decisions. Because of this dynamic complementarity, the model potentially features multiple steady states. Temporary adoption subsidies can have permanent effects by moving an economy to a new transition path that converges to a higher-productivity steady state. We calibrate our model to the microdata and econometric estimates. We evaluate the effects of the South Korean government policy that temporarily provided adoption subsidies to heavy manufacturing firms in the 1970s. Had no adoption subsidies been provided, South Korea would have converged to a less industrialized steady state in which the heavy manufacturing's share of GDP would have been 15% lower and aggregate welfare would have been 10% lower than the steady state with successful industrialization. Thus, temporary subsidies for technology adoption had permanent effects.

Abstract

This paper provides causal evidence of the impact of industrial policy on firms' long-term performance and quantifies industrial policy's long-term welfare effects. Using a natural experiment and unique historical data during the Heavy and Chemical Industry (HCI) Drive in South Korea, we find large and persistent effects of firm-level subsidies on firm size. Subsidized firms are larger than those never subsidized even 30 years after subsidies ended. Motivated by this empirical finding, we build a quantitative heterogeneous firm model that rationalizes these persistent effects through a combination of learning-by-doing (LBD) and financial frictions that hinder firms from internalizing LBD. The model is calibrated to firm-level micro data, and its key parameters are disciplined with the econometric estimates. Counterfactual analysis implies that the industrial policy generated larger benefits than costs. If the industrial policy had not been implemented, South Korea's welfare would have been 22-31% lower, depending on how long-lived are the productivity benefits of LBD. Between one-half and two-thirds of the total welfare difference comes from the long-term effects of the policy.

Abstract

This paper studies the impact of lobbying on resource misallocation. I develop a model of heterogeneous firms that can lobby to decrease their output tax/distortion. This lobbying effort can either magnify or mitigate a pre-lobbying level of misallocation depending on whether the more productive firms are initially more distorted. If the more productive firms are burdened by higher pre-lobbying exogenous distortions, they can lobby to overcome these distortions, which increases aggregate total factor productivity (TFP). The TFP influences of lobbying can be affected by international trade as exporters increase their lobbying expenditures due to complementarities between market size and gains from a lower tax post-lobbying. I estimate the model by reduced-form instrumental variables techniques and structurally using firm-level data. I find that lobbying can increase US TFP by 4-7% compared to a counterfactual economy with the same pattern of pre-lobbying distortions, but where lobbying is not allowed.