From 1960 to 1989, South Korea experienced a famous economic boom, with real GDP per capita growing by an annual average of 6.82 percent. Many observers have attributed this to industrial policy, the practice of giving government support to specific industrial sectors. In this case, industrial policy is often thought to have powered a generation of growth. Did it, though' An innovative study by four scholars, including two MIT economists, suggests that overall GDP growth attributable to industrial policy is relatively limited. Using global trade data to evaluate changes in industrial capacity within countries, the research finds that industrial policy raises long-run GDP by only 1.08 percent in generally favorable circumstances, and up to 4.06 percent if additional factors are aligned ' a distinctly smaller gain than an annually compounding rate of 6.82 percent. The study is meaningful not just because of the bottom-line numbers, but for the reasons behind them. The research...
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