The New Economics of Industrial Policy in a Global Economy

• Applicant: Professor Dr. Jan Schymik
• Subject Area: Economic Policy, Applied Economics ; Economic Theory
• Term: since 2025
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 557666971

There has been a surge in the adoption and implementation of industrial policies across various countries over the recent years. While the textbook use case for industrial policy is well understood, evaluating the impact of policies in the presence of spillovers through global value chains is much more challenging. The primary goal of this project is to establish a research agenda that aims to quantify the impact of industrial policies in the context of global production networks. The project is comprised of four sub-projects, combining causal empirical methods and quantitative structural approaches. The first sub-project will investigate the impact of industrial policy on directed technical change in global value chains. This sub-project investigates the impact of the Chinese industrial policy regarding rare earths which caused a negative supply shock of rare-earth inputs for downstream industries in the rest of the world. In principle, such an industrial policy that makes it harder to obtain an input for foreign competitors can be used to attract downstream industries and hurt downstream industries abroad. Alternatively, downstream industries abroad could shelter themselves from this policy via directed technical change. The sub-project provides empirical evidence whether directed technical change in downstream sectors occurs and then builds and calibrates a quantitative model of international trade that features innovation through directed technical change. The second sub-project examines the reallocation effects of trade and other industrial policies from a firm-level perspective, using granular establishment-level data. The empirical evidence is guided by a model of sequential production-location choices. The primary objective of the third sub-project is to estimate international spillovers of industrial policies by looking at global stock markets. It builds and estimates a structural spatial autoregressive model of the global economy. The goal of the fourth sub-project is to develop a quantitative model of international economics with nominal rigidities. The model is then used to assess the impact of industrial policies in the European Union. Besides input-output linkages, the model accounts for spillovers that can arise from binding downward nominal wage rigidities in the Eurozone and endogenous current accounts.

• DFG Programme: Research Grants
• International Connection: Austria, USA
• Cooperation Partners: Professorin Laura Alfaro, Ph.D.; Professor Harald Fadinger, Ph.D.
• Co-Investigator: Professorin Lei Li, Ph.D.