Industrial Policy Revisited: A New Structural Economics Perspective

Although whether governments should play a facilitating role in economic development has long been a topic for economic discourse and research, as an important instrument industrial policy is often and actively used by governments to promote economic development, both in history and at the moment. Despite much controversy surrounding whether and how governments implement industrial policy, in this article failures and successes of implementing such policy are analyzed through a new structural economics perspective. Specifically, the article argues that (1) sector-targeted industrial policy is essential to achieve dynamic structural change and rapid, sustained growth in an economy; (2) most industrial policies fail because they target industries that are not compatible with the country?s comparative advantages; (3) successful industrial policy should target industries that are the country?s latent comparative advantages; (4) historical experiences show that in the catching-up stage, successful countries? industrial policies, in general, have targeted the industries in countries with a similar endowment structure and somewhat higher per capita income; and (5) the Growth Identification and Facilitation Framework, based on new structural economics, is a new, effective way to target latent comparative-advantage industries and support their growth. JEL Classification: L5, O1, P5.