A Unified National Market and Local Industrial Policy Competition

This study constructs a quantitative spatial equilibrium model that incorporates industrial subsidies. The model formalizes the intrinsic linkages between a national unified national market and local industrial policy competition, enabling a quantitative analysis of their economic impacts. We find that when the degree of market integration is low, local industrial policy competition is more conducive to economic growth and the improvement of total welfare. Conversely, when the degree of market integration is high, central industrial policy proves superior. This shift is driven primarily by reductions in trade costs. Reductions in population mobility costs, by contrast, have little impact on industrial policy itself, but they allow the market’s economies of scale to exert their effects, thereby improving total welfare and reducing inter-regional income inequality. Top-down industrial policies prove most efficient under unified national market conditions. The findings provide insights into local industrial policy competition, the advancement of national market integration, and the effective use of market forces and government policy.