> We find that local industrial policy drove aggregate growth in China’s solar industry, rather than merely shifting activity across cities. Compared to a non-subsidy counterfactual, we estimate that these policies accounted for 45% of the increase in solar innovation, 38% of the revenue increase and 50% of the fall in solar prices. Chinese consumer welfare from energy consumption rose by 12%. When we incorporate subsidy costs, we find that a social benefit of $1.65 accrues per $1 of subsidy cost, and that these benefits double when accounting for the social cost of carbon. One finding from our counterfactuals is that although production and demand subsidies increase welfare, focusing resources on innovation subsidies is much more cost effective. This suggests that policies to support innovation should lie at the heart of industrial policies.
1 Comment
> We find that local industrial policy drove aggregate growth in China’s solar industry, rather than merely shifting activity across cities. Compared to a non-subsidy counterfactual, we estimate that these policies accounted for 45% of the increase in solar innovation, 38% of the revenue increase and 50% of the fall in solar prices. Chinese consumer welfare from energy consumption rose by 12%. When we incorporate subsidy costs, we find that a social benefit of $1.65 accrues per $1 of subsidy cost, and that these benefits double when accounting for the social cost of carbon. One finding from our counterfactuals is that although production and demand subsidies increase welfare, focusing resources on innovation subsidies is much more cost effective. This suggests that policies to support innovation should lie at the heart of industrial policies.