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Sectoral Development Multipliers

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Abstract

How should industrial policies be directed to reduce distortions and foster economic development? We study this question in a multi-sector model with technology adoption, where the production of goods and modern technologies features rich network structures. We provide simple formulas for the sectoral policy multipliers, and provide insights regarding the power of alternative policy instruments. We devise a simple procedure to estimate the model parameters and the distribution of technologies across sectors, which we apply to Indian data. We find that technology adoption greatly amplifies the multipliers' magnitudes, and it changes the ranking of priority sectors for industrial policy. Further, we find that adoption subsidies are the most cost-effective instrument for promoting economic development.

Suggested Citation

  • Francisco J. Buera & Nicholas Trachter, 2024. "Sectoral Development Multipliers," Working Paper 24-02, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:97954
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    References listed on IDEAS

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    More about this item

    Keywords

    Sectoral policy; technology; economic development;
    All these keywords.

    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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