Abstract:
The rapid decline in the global cost of solar panels coincided with China's growing market dominance in the solar PV from the early 2000s. We evaluate the effectiveness of local policy efforts to encourage the growth of the solar industry across Chinese cities. We develop novel measures covering all policies since their inception based on text analysis; construct original data on patenting, production and trade; and implement a synthetic-difference-in-difference approach. We show that city-level subsidies for solar production cause large increases in solar PV output (measured in MegaWatts per Hour), but (with a lag) also raise solar innovation and productivity relative to matched control cities that did not implement such policies. Cities who combined these production subsidies with R&D support had even larger positive effects. We also document positive impacts on solar firm numbers, revenues and exports. Demand and installation subsidies, by contrast, have no significant local impact on these outcomes, which we argue is because demand can be supplied form other locations. These results are consistent with the predictions of a model in which electricity is supplied locally using components (solar panels) sourced from heterogeneous firms across China (subject to transport costs), who endogenously chose whether to pay the fixed costs of exporting and/or innovation. There is no evidence of negative business stealing effects on neighboring cities. Taken together, these results suggest that industrial policy can foster growth and innovation, which is the central tenet of industrial policy which underlies policies elsewhere such as the US Inflation Reduction Act and European Green Deal. The fact that we observe this in an industry that is displacing dirty energy generation worldwide magnifies the importance of our findings.
The seminar will be held in room 1249 (12th floor) at Eilert Sundts Hus. The address is Moltke Moes vei 31.