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Beyond ideological cleavages: A unifying framework for industrial policies and other public interventions

  • Benhassine, Najy
  • Raballand, Gaël

This paper introduces a new framework to characterize the diversity of public policies and interventions to spur investment and growth. Going beyond ideological cleavages on this topic, we argue that two orthogonal features determine how much interventions depart fundamentally from neutral policies: (1) their degree of selectivity (in terms of sectors or other targeted categories of firms) and (2) the extent of price subsidies embedded in such interventions. These two characteristics of interventions respond to different types of justifications, and they do not necessarily need to go hand in hand, even if they often do in practice. Depending on their selectivity and/or the extent of price subsidies, interventions are shown to vary in their distortions, their benefits, and their opportunity costs. The framework is used to illustrate how different country characteristics affect these pros and cons of interventionism. In particular, we look at the effects of the initial state of the investment climate, the country's institutional capacity, its political economy context and the nature of the State-business interaction. Using the examples of poor countries with a small undiversified industrial base, we show that it is often in the situations where interventions may be the most needed, that the conditions for their success are likely to be the weakest, which does not mean either that some interventions cannot succeed in low-income countries.

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Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 33 (2009)
Issue (Month): 4 (December)
Pages: 293-309

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Handle: RePEc:eee:ecosys:v:33:y:2009:i:4:p:293-309
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  1. Rodrik, Dani, 2004. "Industrial Policy for the Twenty-First Century," CEPR Discussion Papers 4767, C.E.P.R. Discussion Papers.
  2. Hausmann, Ricardo & Rodrik, Dani, 2002. "Economic Development as Self-Discovery," Working Paper Series rwp02-023, Harvard University, John F. Kennedy School of Government.
  3. Dani Rodrik, 2008. "Goodbye Washington Consensus, Hello Washington Confusion? A Review of the World Banks Economic Growth in the 1990s: Learning from a Decade of Reform," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 55(2), pages 135-156, June.
  4. Palmade, Vincent, 2005. "Industry level analysis : the way to identify the binding constraints to economic growth," Policy Research Working Paper Series 3551, The World Bank.
  5. Howard Pack & Kamal Saggi, 2006. "Is There a Case for Industrial Policy? A Critical Survey," World Bank Research Observer, World Bank Group, vol. 21(2), pages 267-297.
  6. David McKenzie, 2010. "Impact Assessments in Finance and Private Sector Development: What Have We Learned and What Should We Learn?," World Bank Research Observer, World Bank Group, vol. 25(2), pages 209-233, August.
  7. Benjamin Olken, 2005. "Monitoring corruption: Evidence from a field experiment in indonesia," Natural Field Experiments 00317, The Field Experiments Website.
  8. Pack, Howard & Saggi, Kamal, 2006. "The case for industrial policy : a critical survey," Policy Research Working Paper Series 3839, The World Bank.
  9. Sanjaya Lall (QEH), . "Reinventing Industrial Strategy: The Role of Government Policy in Building Industrial Competitiveness," QEH Working Papers qehwps111, Queen Elizabeth House, University of Oxford.
  10. Banerjee, Abhijit & Duflo, Esther, 2004. "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program," CEPR Discussion Papers 4681, C.E.P.R. Discussion Papers.
  11. Abhijit V. Banerjee & Esther Duflo & Kaivan Munshi, 2003. "The (Mis)Allocation of Capital," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 484-494, 04/05.
  12. Pack, Howard, 2000. "Industrial Policy: Growth Elixir or Poison?," World Bank Research Observer, World Bank Group, vol. 15(1), pages 47-67, February.
  13. Mehdi SHAFAEDDIN, 1998. "How Did Developed Countries Industrialize? The History Of Trade And Industrial Policy: The Cases Of Great Britain And The Usa," UNCTAD Discussion Papers 139, United Nations Conference on Trade and Development.
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