🤖 AI Summary
This study investigates the causal impact of South Korea’s Heavy and Chemical Industry (HCI) policy (1973–1979) on manufacturing upgrading. Exploiting the exogenous policy discontinuity as a quasi-natural experiment, the authors construct a novel industry-level panel dataset on policy exposure and performance by integrating input-output network analysis to quantify both direct and indirect intersectoral spillovers. Results show that the HCI policy significantly expanded the scale and export capacity of targeted industries and catalyzed downstream upgrading through supply-chain linkages; these effects persisted post-policy termination, facilitating a structural shift toward high-value-added manufacturing. The key contribution lies in pioneering the integration of regression discontinuity design with input-output–based industrial linkage analysis—demonstrating that short-term industrial policies can generate enduring dynamic comparative advantages and coordinated upgrading pathways across interconnected sectors.
📝 Abstract
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 and Chemical 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.