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Industrial Policies and Growth: Lessons from International Experience

  • Marcus Noland
  • Howard Pack

The application of industrial policies (IP) to direct resources to industries considered preponderant in achieving growth has been the chosen road by many emerging economies to tackle underdevelopment. Subsidized loans, variable taxes and differentiated tariffs are frequently used. Because of the successful experiences of some South Asian industrial policies, other emerging countries feel tempted of replicating the formula. However, these should be sure first that their governments have the necessary competencies. There are also two questions to ask on the role of IPs in the growth of these countries: first, Were IPs the dominant factor in the countries’ accelerated growth? The neoclassical approach offers an alternative explanation, that the Asian miracle was mainly the result of strong macroeconomic policies implemented. The second question is: Can the problems of some Asian economies in the 1990s be explained by the prolonged application of IPs? This article finds evidence to support that economic growth was due to strong macroeconomic foundations, such as fiscal discipline, controlled inflation and adequate real exchange rate levels. These variables were the driving forces that created high levels of saving and investment. On the other hand, the implementation of IPs is difficult in a globalized world where the regulations of international trade have become very important.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 169.

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Date of creation: Jul 2002
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Handle: RePEc:chb:bcchwp:169
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  2. Horioka, C.Y. & Watanabe, W., 1996. "Why Do People Save? A Micro-Analysis of Motives for Household Saving in Japan," ISER Discussion Paper 0412, Institute of Social and Economic Research, Osaka University.
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  14. Marcus Noland, 2000. "Avoiding the Apocalypse: The Future of the Two Koreas," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 94.
  15. Vestal, James E, 1989. "Evidence on the Determinants and Factor Content Characteristics of Japanese Technology Trade 1977-1981," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 565-71, November.
  16. Kwon, Jene K & Paik, Hoon, 1995. "Factor Price Distortions, Resource Allocation, and Growth: A Computable General Equilibrium Analysis," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 664-76, November.
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