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Industrial Policy for the Twenty-First Century

  • Rodrik, Dani

Unlike what is commonly believed, the last two decades have not witnessed the twilight of industrial policy. Instead, incentives and subsidies have been refocused on exports and direct foreign investment, in the belief that these activities are the source of significant positive spillovers. The challenge in most developing countries is not to rediscover industrial policy, but to redeploy it in a more effective manner. This paper lays out an institutional framework for accomplishing this objective. A central argument is that the task of industrial policy is as much about eliciting information from the private sector on significant externalities and their remedies as it is about implementing appropriate policies. The right model for industrial policy is not that of an autonomous government applying Pigovian taxes or subsidies, but of strategic collaboration between the private sector and the government with the aim of uncovering where the most significant obstacles to restructuring lie and what type of interventions are most likely to remove them.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4767.

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Date of creation: Nov 2004
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Handle: RePEc:cpr:ceprdp:4767
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  1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
  2. Mihir A. Desai & Devesh Kapur & John McHale, 2004. "Sharing the Spoils: Taxing International Human Capital Flows," International Tax and Public Finance, Springer, vol. 11(5), pages 663-693, 09.
  3. Charles Sabel & Sanjay Reddy, 2007. "Learning to Learn: Undoing the Gordian Knot of Development Today," Challenge, M.E. Sharpe, Inc., vol. 50(5), pages 73-92, October.
  4. 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.
  5. Klinger, Bailey & Lederman, Daniel, 2004. "Discovery and development : an empricial exploration of"new"products," Policy Research Working Paper Series 3450, The World Bank.
  6. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December.
  7. Wacziarg, Romain & Imbs, Jean, 2000. "Stages of Diversification," Research Papers 1653, Stanford University, Graduate School of Business.
  8. Andrés Rodríguez-Clare, 2005. "Clusters and Comparative Advantage: Implications for Industrial Policy," IDB Publications (Working Papers) 6830, Inter-American Development Bank.
  9. Rodrik, Dani, 1996. "Coordination failures and government policy: A model with applications to East Asia and Eastern Europe," Journal of International Economics, Elsevier, vol. 40(1-2), pages 1-22, February.
  10. Gordon H. HANSON, 2001. "Should Countries Promote Foreign Direct Investment?," G-24 Discussion Papers 9, United Nations Conference on Trade and Development.
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