Growth identification and facilitation : the role of the state in the dynamics of structural change
AbstractActive economic policies by developing countries’ governments to promote growth and industrialization have generally been viewed with suspicion by economists, and for good reasons: past experiences show that such policies have too often failed to achieve their stated objectives. But the historical record also indicates that in all successful economies, the state has always played an important role in facilitating structural change and helping the private sector sustain it across time. This paper proposes a new approach to help policymakers in developing countries identify those industries that may hold latent comparative advantage. It also recommends ways of removing binding constraints to facilitate private firms’ entry into those industries. The paper introduces an important distinction between two types of government interventions. First are policies that facilitate structural change by overcoming information and coordination and externality issues, which are intrinsic to industrial upgrading and diversification. Such interventions aim to provide information, compensate for externalities, and coordinate improvements in the"hard"and"soft"infrastructure that are needed for the private sector to grow in sync with the dynamic change in the economy’s comparative advantage. Second are those policies aimed at protecting some selected firms and industries that defy the comparative advantage determined by the existing endowment structure—either in new sectors that are too advanced or in old sectors that have lost comparative advantage.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 5313.
Date of creation: 01 Jan 2011
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-29 (All new papers)
- NEP-DEV-2010-05-29 (Development)
- NEP-FDG-2010-05-29 (Financial Development & Growth)
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- World Bank's Lin on Post-Crisis Industrial Policy
by Emmanuel in International Political Economy Zone on 2010-12-07 00:01:00
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"Do Institutions Matter for FDI Spillovers? The Implications of China’s “Special Characteristics”,"
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- Lin, Justin Yifu & Treichel, Volker, 2011. "Applying the growth identification and facilitation framework : the case of Nigeria," Policy Research Working Paper Series 5776, The World Bank.
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- Wei Li & Taye Mengistae & Lixin Colin Xu, 2011. "Diagnosing Development Bottlenecks: China and India," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73, pages 722-752, December.
- Harrison, Ann & Sepulveda, Claudia, 2011. "Learning from developing country experience : growth and economic thought before and after the 2008-09 crisis," Policy Research Working Paper Series 5752, The World Bank.
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