Industrial policy and catching-up: State-owned enterprises in a North–South agent-based model

This paper builds an international trade macroeconomic agent-based model and introduces state-owned enterprises (SOEs) with an industrial policy mission in a developing country. We evaluate the macroeconomic convergence of the South with respect to the North. Our model suggests that SOEs may significantly enhance technological capabilities and innovation dynamics in the developing country, by accelerating the diffusion of new technologies thereby enhancing the overall productivity growth. They also positively affect market competition and trade dynamics by shaping long-term specialization patterns and development trajectories. The effectiveness of SOEs is driven by “patient capital” and improved technological endowment. Our results show that policies prioritizing the preservation of firms endowed with high technological capabilities, while relieving them from short-term financial constraints, may lead to improved convergence. This emphasizes the importance of strategic selectivity of policymakers, indicating that mission-oriented SOEs represent a relevant policy instrument for catching-up.