This paper examines the welfare consequences of industrial policies aimed at boosting domestic manufacturing in developing countries, focusing on the Indian government’s tariff policy for mobile handset production. We develop a structural model of India’s mobile handset industry, where firms endogenously decide supply chain alternatives, product sets, and prices. Our counterfactual simulations indicate that the status quo import tariff on ready-to-use handsets significantly increases local assembly operations. However, a lower tariff of around 8% would maintain similar assembly levels while significantly enhancing consumer surplus. An additional input import tariff on handset components discourages firms from relocating operations to India, potentially undermining the policy’s goal.
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