All Economics is Local: Evaluating Industrial Policy Where It Lands

Heather
Boushey

Frances
Fitzgerald

Rohan
Sandhu

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The global resurgence of industrial policy has created a new measurement problem. Industrial policies typically seek far-reaching, structural economic changes, but these impacts are often difficult to observe in real time. The authors propose a new evaluative framework: to track industrial policy's progress towards its long-term goals, this paper proposes systematically examining its intermediate impacts on the local economies where it takes root.

They make this argument for three reasons:

1. The productive capabilities that industrial policy seeks to build are embedded in, and can therefore be observed in, places;
2. The formation of new capabilities is path-dependent, meaning that an accurate accounting of industrial policy would track its place-based intermediate outcomes; and
3. There is ample evidence that industrial policies reshape places in myriad ways, even when they are not explicitly place-based in design.

The framework is organized around seven economic mechanisms through which the literature suggests industrial policy may reshape local development:

• Expanding a local economy's export base
• Consumption multipliers
• Supply-chain linkages and input-output effects
• Agglomeration and cluster formation
• Productivity and capability building
• Public investment and institutional capacity
• Labor-market upgrading

Each mechanism has a distinct theory of change, and the authors assign specific indicators to test whether the relevant theory is operating. Alongside standard public datasets, these indicators draw on newer sources, including satellite measurement of building activity, postal-service data on business vacancies, and corporate-affiliation records that trace supply-chain connections. For each indicator, the paper also assesses how feasible it is to construct with existing local-level data, and how quickly it would register change.

While the framework is centered on the United States, its applicability is global. Overall, it offers a way to monitor some of the most consequential economic interventions of our time as they are implemented.