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The case for industrial policy : a critical survey

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Author Info
Pack, Howard
Saggi, Kamal

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Abstract

What are the underlying rationales for industrial policy? Does empirical evidence support the use of industrial policy for correcting market failures that plague the process of industrialization? To address these questions, the authors provide a critical survey of the analytical literature on industrial policy. They also review some recent industry successes and argue that only a limited role was played by public interventions. Moreover, the recent ascendance of international industrial networks, which dominate the sectors in which less developed countries have in the past had considerable success, implies a further limitation on the potential role of industrial policies as traditionally understood. Overall, there appears to be little empirical support for an activist government policy even though market failures exist that can, in principle, justify the use of industrial policy.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3839.

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Date of creation: 01 Feb 2006
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Handle: RePEc:wbk:wbrwps:3839

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Keywords: Economic Theory&Research; ICT Policy and Strategies; Water and Industry; Industrial Management; Markets and Market Access;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Klimenko, Mikhail M., 2004. "Industrial targeting, experimentation and long-run specialization," Journal of Development Economics, Elsevier, vol. 73(1), pages 75-105, February. [Downloadable!] (restricted)
  2. Pack, Howard & Saggi, Kamal, 2001. "Vertical technology transfer via international outsourcing," Journal of Development Economics, Elsevier, vol. 65(2), pages 389-415, August. [Downloadable!] (restricted)
  3. Hoff, Karla, 1997. "Bayesian learning in an infant industry model," Journal of International Economics, Elsevier, vol. 43(3-4), pages 409-436, November. [Downloadable!] (restricted)
  4. Rodriguez-Clare, Andres, 2007. "Clusters and comparative advantage: Implications for industrial policy," Journal of Development Economics, Elsevier, vol. 82(1), pages 43-57, January. [Downloadable!] (restricted)
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  5. Rhee, Yung Whee, 1990. "The catalyst model of development: Lessons from Bangladesh's success with garment exports," World Development, Elsevier, vol. 18(2), pages 333-346, February. [Downloadable!] (restricted)
  6. Lee, Jong-Wha, 1996. " Government Interventions and Productivity Growth," Journal of Economic Growth, Springer, vol. 1(3), pages 391-414, September.
  7. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-73, September. [Downloadable!] (restricted)
  8. Foster, Andrew D & Rosenzweig, Mark R, 1996. "Technical Change and Human-Capital Returns and Investments: Evidence from the Green Revolution," American Economic Review, American Economic Association, vol. 86(4), pages 931-53, September. [Downloadable!] (restricted)
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  9. Robert Z. Lawrence & David E. Weinstein, 1999. "Trade and Growth: Import-Led or Export-Led? Evidence From Japan and Korea," NBER Working Papers 7264, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February. [Downloadable!] (restricted)
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  11. Barry, F & Bradley, J, 1997. ""FDI and Trade : The Irish Host-Country Experience"," Papers 97/13, College Dublin, Department of Political Economy-.
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  12. Wolfgang Mayer, 1984. "The Infant-Export Industry Argument," Canadian Journal of Economics, Canadian Economics Association, vol. 17(2), pages 249-69, May. [Downloadable!] (restricted)
  13. Pack, Howard & Westphal, Larry E., 1986. "Industrial strategy and technological change : Theory versus reality," Journal of Development Economics, Elsevier, vol. 22(1), pages 87-128, June. [Downloadable!] (restricted)
  14. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December. [Downloadable!] (restricted)
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  15. Raff, Horst & Kim, Young-Han, 1999. "Optimal export policy in the presence of informational barriers to entry and imperfect competition," Journal of International Economics, Elsevier, vol. 49(1), pages 99-123, October. [Downloadable!] (restricted)
  16. Besley, Timothy & Case, Anne, 1993. "Modeling Technology Adoption in Developing Countries," American Economic Review, American Economic Association, vol. 83(2), pages 396-402, May. [Downloadable!] (restricted)
  17. Bardhan, Pranab K, 1971. "On Optimum Subsidy to a Learning Industry: An Aspect of the Theory of Infant-Industry Protection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 12(1), pages 54-70, February. [Downloadable!] (restricted)
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  18. Tibor Scitovsky, 1954. "Two Concepts of External Economies," Journal of Political Economy, University of Chicago Press, vol. 62, pages 143. [Downloadable!] (restricted)
  19. Andrés Rodríguez-Clare, 2005. "Microeconomic Interventions after the Washington Consensus," RES Working Papers 4393, Inter-American Development Bank, Research Department. [Downloadable!]
  20. Dinopoulos, Elias & Lewis, Tracy R. & Sappington, David E. M., 1995. "Optimal industrial targeting with unknown learning-by-doing," Journal of International Economics, Elsevier, vol. 38(3-4), pages 275-295, May. [Downloadable!] (restricted)
  21. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June. [Downloadable!]
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  22. Gereffi, Gary, 1999. "International trade and industrial upgrading in the apparel commodity chain," Journal of International Economics, Elsevier, vol. 48(1), pages 37-70, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kjetil Bjorvatn & Nicola D. Coniglio, 2007. "How should industrial policy be designed in developing countries?," series 0014, Dipartimento di Scienze Economiche - Università di Bari, revised Feb 2007. [Downloadable!]
  2. Marcus Noland & Howard Pack, 2005. "The East Asian Industrial Policy Experience: Implications for the Middle East," Peterson Institute Working Paper Series WP05-14, Peterson Institute for International Economics. [Downloadable!]
  3. Schafer, Martin & Efken, Josef & Wendt, Heinz & Trefflich, Annette & Uetrecht, Inge, 2007. "Public Support of the Processing and Marketing of Agricultural Products: A Driver of Innovation in the Food Industry?," 2007 1st Forum, February 15-17, 2007, Innsbruck, Austria 6605, International European Forum on Innovation and System Dynamics in Food Networks. [Downloadable!]
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