Ernest Liu on Industrial Policy

Video & Timestamps

On Thursday, June 20, Ernest Liu joined Markus’ Academy for a conversation on Industrial Policy. Ernest Liu is an Assistant Professor of Economics and the Class of 1936 Bicentennial Preceptor at Princeton University.

Watch the full presentation below. You can watch all Markus’ Academy webinars on our Markus’ Academy YouTube Channel.

Timestamps:

[0:00] Markus’ introduction and poll questions
[7:31] Industrial policy and networks
[14:36] Subsidizing upstream sectors to promote development (Liu, 2019)
[44:11] Local incentives in multi-region economies (Chen et al., 2024)
[54:32] Innovation networks and R&D allocation (Lui and Ma, 2024)
[1:16:12] Coordination failures in the green transition and Conclusion (Aghion et al., 2024)

Summary

• A summary in three bullets
  • Industrial policy often aims at using selective interventions to improve aggregate efficiency. But it is hard to empirically measure the effectiveness of industrial policy in aggregate. We can use network theory to measure its aggregate effects and to identify key sectors and technologies
  • The talk covers four papers that highlight different economic mechanisms that can operate within networks, with varying policy recommendations
  • (1) Upstream sectors should be targeted when market imperfections accumulate along the supply chain; (2) cross-region externalities highlight the suboptimal incentives of local planners; (3) central sectors should be targeted to leverage knowledge spillovers; (4) in the presence of coordination problems, downstream sectors should be targeted to maximize incentives along the supply chain.
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