Research on industrial policy has taken off, leading to a better understanding of when such policies effectively harness economic development. This article reviews the recent literature on the economics of industrial policies. Until recently, empirical studies on industrial policies came largely in one of two types: detailed country/region studies and cross-industry or cross-country econometric studies. I point out that the country/region studies had the usual problem that it was difficult to trace the effects of success to specific industrial policies, while the econometric studies suffered from the problem of misspecification. I show that a new generation of work has been moving us beyond the largely ideological debates of the past to a more contextual, pragmatic understanding.
Since 2002, the People’s Bank of China has frequently used both quantity-based direct monetary instruments and price-based indirect monetary instruments to promote economic growth and stabilize price level. Specifically, this study estimates 13 three-variable factor-augmented vector autoregression (FAVAR) models to explore how two types of monetary instruments affect China’s economy and price level. Overall, we find that monetary policy has positive effects on China’s economy and price level. Second, this study clearly states that the effectiveness of China’s monetary policy on the economy has depended on China’s quantity-based direct monetary instruments since 2002. Third, the effectiveness of quantity-based direct monetary instruments on China’s economy and price level is dependent on the significant and positive effects of quantity-based direct monetary instruments after the 2008 financial crisis. Fourth, the significant and positive effects of price-based indirect monetary instruments on China’s economy and price level before 2008 cannot fundamentally change their current insignificant effects on China’s economy and price level.
Foreign direct investment (FDI) and foreign remittance have been the main sources of external capital inflows for many developing countries. FDI has been credited as the main driver of rapid economic growth in many Asian countries/regions in recent decades. However, this effect of FDI on long-run economic growth has not been observed in Latin American countries. Now, the question is whether FDI and an increase in foreign remittances in the past two decades have achieved expected positive results in terms of economic growth for emerging economies. This study uses a generalized method of moments (GMM) dynamic panel model to quantify the impacts of FDI and foreign remittances as sources of foreign capital for Asia and Latin America. Our findings suggest that FDI and remittances perform differently in different regions in terms of their impacts on GDP growth. Countries that have specific policies (i.e., industrial policy, domestic content requirement, and export production targets) for FDI are likely to derive more significant benefits from FDI and remittances. Developing countries that are emerging or lagging should learn from the countries with positive outcomes and implement similar policies.
Could land reallocation partially explain the decision of off-farm employment of farmers in rural China? Using an individual-level survey data, we find that there is no effect of land reallocation on the individuals’ decision on off-farm employments. However, there is a robust negative effect of land reallocation on the amount of time that villagers devote to off-farm work. The first result is attributed to the large earnings difference between farm and nonfarm work; the second result is attributed to the fact that village leaders reallocate land from households short of farm labor to households that farm intensively.
This paper investigates how productivity influences firms’ exports. Various firm characteristics are employed to test the self-selection hypothesis alongside the effects of firms’ productivity on their share of exports in total sales. Using a pseudo-panel data set constructed from the firm-level data for the manufacturing sector in Nigeria, we find no evidence that higher productivity influences the decision on whether or not a firm would participate in exports. However, it is established that higher productivity increases the share of exports in total sales of firms that are already participating in foreign markets. A policy implication of our result is that Nigeria can realize a larger share of manufactured exports in total merchandise exports by directing efforts towards improving primarily the productivity of firms that are already involved in exports.
In this paper, we introduce economic policy uncertainty by using a stochastic discount model. Via parameter calibration and static analysis, we investigate the dynamic characteristics of stock risk on different policy uncertainty. On this basis, we test the channel through policy uncertainty affects stock risk by empirical simulation, and the effect of policy uncertainty on stock risk formation by portfolio analysis, in order to verify the applicability of the theoretical model in China. Finally, the panel model is used to quantitatively analyze the relationship between policy uncertainty and stock risk. The results show that policy uncertainty can inereuse stock risk through enterprise cash flow, discounting factors and correlation coefficient. The effect is still significant after controlling traditional risk factors, corporate heterogeneity, and external environmental factors. Companies that are non-state-owned, have lower returns on invested capital and lower asset growth rate manifest greater stock risk when policy uncertainty is higher. The magnitude of the effect of policy uncertainty on stock risk is larger when the economy is weaker and the policy environment is more unstable.