Research
Job Market Paper
Optimal place-based industrial policy
Abstract This paper examines whether industrial policy should target specific regions or maintain uniform subsidies across space when technological spillovers have a regional component. I demonstrate that the optimal approach depends critically on the underlying production structure. Using a general spatial model with multiple sectors, I show that when productivities are hicks-neutral, optimal industrial subsidies should be higher in regions with larger industrial bases, even with constant spillover elasticities across regions. However, when productivities are harrod-neutral, the optimal policy becomes a constant ad-valorem subsidy across all regions. This finding reveals important theoretical foundations for place-based industrial policies and their interaction with production technologies. I quantify these effects using data from Great Britain, where I estimate local sectoral agglomeration spillovers. In the Hicks-neutral case, place-based policies yield welfare gains of 2.1% compared to 1.5% from uniform subsidies. Conversely, in the Harrod-neutral case, uniform subsidies increase welfare by 2.0% compared to 1.6% with place-based approaches. These results provide the first theoretical treatment of increasingly popular place-based industrial policies and demonstrate that their efficacy fundamentally depends on the nature of productivity in the targeted industries.
Works in Progress
Geography, uncertainty, and the cost of climate change with Jordan-Rosenthal Kay
Abstract Uncertainty regarding the rise in global temperatures increases the expected welfare cost of climate change if the welfare function is convex in temperature. We focus on how the geography of the climate shock interacts with geographic adaptation forces (trade and migration) to determine the shape of welfare response to climate change. We demonstrate theoretically that adaptation forces dampen convexity in damage functions, but the strength of these adaptation forces depends on the spatial distribution of the climate shock. Integrating over different climate scenarios, uncertainty amplifies the welfare loss from climate change. The geography of welfare loss, incorporating climate uncertainty, concentrates previously unaccounted for excess losses in the developing world, alongside the United States and some regions in Europe. These excess damages are highly spatially correlated, because adaptation forces through trade and migration display a strong gravity relationship in the data.
Federal taxes in a spatial economy