Industrial policy and potential for export upgrading: Evidence from government-approved projects in China

Export product upgrading is a slow process, and the effectiveness of industrial policy in promoting export upgrading takes a long time to reveal. Thus, this study introduces a new angle by investigating the effect of industrial policy on the potential for export upgrading, which has previously gone unexplored in the literature. Using data from government-approved microprojects from 2009 to 2017, we find that industrial policy significantly improves the potential for export product upgrades. Mechanism analysis indicates that this effect is driven by financing constraint relaxation, total factor productivity improvements, and industrial agglomeration promotion within the same industry and its upstream and downstream sectors. Our findings contribute to the debate about the efficacy of government intervention by highlighting the role of government in promoting the potential for upgrading export products.