Local effects of industrial complexes

Abstract

We examine the local effects of South Korea's large-scale place-based industrial policy of constructing industrial complexes in left-behind regions. We compile a novel dataset on industrial complex designations dating back to the 1960s and link it to administrative establishment surveys. Using a stacked difference-in-differences design, we estimate the causal effects of industrial complex designation on local economic outcomes. We find that industrial complex designation increases aggregate local employment by approximately 15 percent ten years after designation and raises manufacturing output by roughly 40 percent. Employment growth occurs not only in the subsidized manufacturing sector but also in the services and construction sectors, which are not directly targeted by the policy. We find that each additional job in an industrial complex generates 1.3 to 1.9 jobs in the local economy, including the original job, with the 0.3 to 0.9 additional jobs being created primarily in the service sector. Nearly three quarters of the additional manufacturing employment results from the expansion of establishments that existed prior to the construction of the complex. While we find no evidence that industrial complexes increase manufacturing establishments' productivity, they increase investment, consistent with the policy primarily alleviating capital constraints.