Can Government Policy Influence Industrial Competitiveness: Evidence from Poland and the Czech Republic

Government intervention in support of a particular firm or industry has generally been justified on the grounds of market failure. Theoretical and empirical developments in the last thirty years, particularly the concepts of ‘regulatory capture’, ‘government failure’ and ‘intergovernmental competition’, have significantly weakened the case for government intervention. We use data on the population of three-digit industries in the 1996/97-2003 period to develop a model in which industrial competitiveness is affected by a range of industry-specific factors including government policy instruments. The initial results seem to confirm the view of the sceptics that policy intervention through taxes and subsidies do not improve the performance of the sector as a whole.