Reviving Small-Scale Reservations : Evidence from the Korean Ready-Mixed Concrete Industry ∗

Korea revived its small-scale industry (SSI) reservation policy in the early 2010s to protect small businesses and promote their competitiveness. But there has been ongoing debate about whether this size-contingent entry regulation causes allocative inefficiency. This paper examines the effects of SSI reservation on both small plants’ performances and allocative efficiency in the Korean ready-mixed concrete industry. By exploiting exogenous variation in preexisting large plants across geographically independent markets, we find that the SSI policy increases average productivity of small plants in the affected market, but decreases competition and thus weakens the market selection process among those plants. Our findings suggest that the revived SSI policy may result in allocative inefficiency for the reserved industries. JEL codes: L11, L53, L61