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Reinventing Industrial Strategy: The Role Of Government Policy In Building Industrial Competitiveness

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  • Sanjaya LALL

Abstract

As liberalization and globalization gather pace, some developing countries cope well but the majority do not. Diverging industrial competitiveness is one of the causes of the growing disparities in income: the potential that globalization offers for industrial growth is being tapped by a relatively small number of countries, while liberalization is driving the wedge between them and laggards deeper. This paper examines two approaches to this problem: neoliberal and structuralist. The neoliberal approach is that the best strategy for all countries and in all situations is to liberalize. Integration into the international economy, with resource allocation driven by free markets, will let them realise their .natural. comparative advantage, optimize dynamic advantage and yield the maximum attainable growth. No government intervention can improve upon this but will only reduce welfare. The structuralist approach puts less faith in free markets and more in the ability of governments to mount interventions effectively. It questions the theoretical and empirical basis for the argument that untrammelled market forces account for the industrial success of the East Asian Tigers (or the presently rich countries). Accepting the mistakes of past strategies and the need for greater openness, it argues that greater reliance on markets also needs a more proactive role for the government. The paper reviews the nature of current globalization and evidence on the growing divergence in competitive performance in the developing world. It goes on to consider the case for industrial policy, arguing that interventions are necessary to overcome market failures in building the capabilities required for industrial development. The approach adopted draws on evolutionary theories of technical change as applied to development in the technological capability approach. The paper then describes the strategies adopted by the Asian Tigers to build industrial competitiveness, pointing out the pervasiveness of selective interventions and significant strategic differences between them. The paper concludes with lessons for other developing countries: the kinds of industrial policy needed in the current international setting are clearly different from the traditional forms of inward-looking industrialisation strategies of the early post-war era, but globalization and technical change do not eliminate the need for intervention. On the contrary, given path dependence, cumulativeness and agglomeration economies, they increase the need. There is therefore a compelling need to reconsider the rules of the game constraining the exercise of industrial policy, and for international assistance in designing and implementing appropriate policies.

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Paper provided by United Nations Conference on Trade and Development in its series G-24 Discussion Papers with number 28.

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Date of creation: 2004
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Handle: RePEc:unc:g24pap:28

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  1. Erik S. Reinert, . "Competitiveness and its predecessors - a 500-year cross-national perspective," STEP Report series 199403, The STEP Group, Studies in technology, innovation and economic policy.
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  6. Sanjaya Lall and Manuel Albaladejo, . "Indicators of the Relative Importance of IPRs In Developing Countries," QEH Working Papers qehwps85, Queen Elizabeth House, University of Oxford.
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  8. Marcus Noland & Howard Pack, 2003. "Industrial Policy in an Era of Globalization: Lessons from Asia," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 358.
  9. Mathews, John A., 2002. "The origins and dynamics of Taiwan's R&D consortia," Research Policy, Elsevier, vol. 31(4), pages 633-651, May.
  10. Peter Evans, 1998. "Transferable lessons? Re-examining the institutional prerequisites of East Asian economic policies," Journal of Development Studies, Taylor & Francis Journals, vol. 34(6), pages 66-86.
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  13. Lall, Sanjaya, 2001. "Competitiveness Indices and Developing Countries: An Economic Evaluation of the Global Competitiveness Report," World Development, Elsevier, vol. 29(9), pages 1501-1525, September.
  14. Timothy J. Sturgeon, 2002. "Modular production networks: a new American model of industrial organization," Industrial and Corporate Change, Oxford University Press, vol. 11(3), pages 451-496, June.
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Cited by:
  1. Ortíz Quevedo, Carlos Humberto & Salazar Juan David, 2014. "Brasil como horizonte: mayor ingreso y mayor crecimiento económico para Colombia," DOCUMENTOS DE TRABAJO-CIDSE 011033, UNIVERSIDAD DEL VALLE - CIDSE.
  2. Narula, Rajneesh & Bellak, Christian, 2008. "EU enlargement and consequences for FDI assisted industrial development," MERIT Working Papers 067, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  3. Andrés Rodríguez-Clare, 2005. "Coordination Failures, Clusters and Microeconomic Interventions," Research Department Publications 4431, Inter-American Development Bank, Research Department.
  4. Shafaeddin, Mehdi, 2010. "Trade liberalization, industrialization and development; experience of recent decades," MPRA Paper 26355, University Library of Munich, Germany.
  5. Shafaeddin, Mehdi, 2010. "The Role of China in Regional South-South Trade in Asia-Pacific: Prospects for industrialization of the low-income countries," MPRA Paper 26358, University Library of Munich, Germany.
  6. Rodrik, Dani, 2004. "Industrial Policy for the Twenty-First Century," Working Paper Series rwp04-047, Harvard University, John F. Kennedy School of Government.
  7. Andrés Rodríguez-Clare, 2005. "Microeconomic Interventions after the Washington Consensus," Research Department Publications 4393, Inter-American Development Bank, Research Department.
  8. Mallett, Alexandra, 2007. "Social acceptance of renewable energy innovations: The role of technology cooperation in urban Mexico," Energy Policy, Elsevier, vol. 35(5), pages 2790-2798, May.
  9. Shafaeddin, Mehdi, 2010. "The rationale for South-South trade; An Alternative Approach," MPRA Paper 26354, University Library of Munich, Germany.
  10. Andrés Rodríguez-Clare, 2005. "Intervenciones microeconómicas después del Consenso de Washington," Research Department Publications 4394, Inter-American Development Bank, Research Department.
  11. Uzma Zia, 2007. "International Competitiveness—Where Pakistan Stands?," PIDE-Working Papers 2007:28, Pakistan Institute of Development Economics.
  12. Benhassine, Najy & Raballand, Gaël, 2009. "Beyond ideological cleavages: A unifying framework for industrial policies and other public interventions," Economic Systems, Elsevier, vol. 33(4), pages 293-309, December.
  13. Mo, Pak Hung, 2011. "Trade Liberalization Sequence for Sustained Economic Growth," MPRA Paper 28917, University Library of Munich, Germany.
  14. Andrés Rodríguez-Clare, 2005. "Fallas de coordinación, conglomerados e intervenciones microeconómicas," Research Department Publications 4432, Inter-American Development Bank, Research Department.
  15. Helen Shapiro, 2007. "Industrial Policy and Growth," Working Papers 53, United Nations, Department of Economics and Social Affairs.
  16. Uzma Zia, 2007. "International Competitiveness  Where Pakistan Stands?," Development Economics Working Papers 22222, East Asian Bureau of Economic Research.
  17. Shafaeddin, Mehdi, 2008. "South-South Regionalism And Trade Cooperation In The Asia-Pacific Region," MPRA Paper 10886, University Library of Munich, Germany.
  18. Shafaeddin, Mehdi, 2009. "Impact of Selectivity and Neutrality of trade Policy Incentives on Industrialization of Developing Countries; Implications for NAMA Negotiations," MPRA Paper 15037, University Library of Munich, Germany.
  19. Khemraj, Tarron & Hinova, Diana, 2011. "Elected Oligarchy and Economic Underdevelopment: The Case of Guyana," MPRA Paper 29733, University Library of Munich, Germany.

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