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Is The Industrial Policy Relevant In The 21st Century?

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  • Shafaeddin, Mehdi

Abstract

Abstract The purpose of this paper is to examine whether industrial policy has any place in industrialization and economic development of developing countries in the new world economy. The author argues that the answer to this question depends on the development objective of the country and the role envisaged for international trade. If the role of international trade is to achieve the objective of the integration of developing countries into the world economy purely for the sake of integration, the industrial policy is irrelevant. By contrast, if development is the ultimate objective of their integration to the world economy, what is irrelevant is the current dominate economic philosophy and the international rules which govern trade and development. Such rules facilitate globalization but they are not particularly conducive to industrialization and development of developing countries. We have been witnessing two contradictory developments in the world economy and international policy during recent decades. On the one hand, the need for sophisticated trade and industrial policies has increased; on the other hand the economic philosophy has changed against government intervention in the economy. The need for industrial policy has increased because the international market has become increasingly more concentrated; global production, international trade and technology have become more and more dominated by TNCs; technological changes have accelerated and production has become more knowledge-intensive. The policy space of developing countries has, however, shrunk due to the dominant views of the orthodoxy. Such views have been reflected on the conditionalities, imposed on many developing countries by International Financial Institutions (IFIs), bilateral donors and to a large extent through GATT/WTO rules and advocacy of “Washington Consensus”. Meanwhile the across-the-board and universal trade liberalization implemented by most developing countries during recent decades has failed after the failure of across-the-board import-substitution of the preceding decades. Such failures have put trade policy as well as trade diplomacy at the cross-roads. The failures of the top-down approach to trade and industrial policies through which one size-for-all rules are drawn at he international level and imposed on developing countries raises a serious question: is not there a need for rethinking trade and industrial policies? After arguing for the relevance of industrial policy, the author presents an alternative framework by taking a bottom-up approach in this study. He presents a relevant framework for what is required at the national level to catch- up in the process of industrialization and development and, and on this basis, he argue briefly for changes in international trade rules to make them development oriented.

Suggested Citation

  • Shafaeddin, Mehdi, 2006. "Is The Industrial Policy Relevant In The 21st Century?," MPRA Paper 6643, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:6643
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Shafaeddin, Mehdi, 2010. "Trade liberalization, industrialization and development; experience of recent decades," MPRA Paper 26355, University Library of Munich, Germany.
    2. Shafaeddin, Mehdi, 2006. "Does trade openness helps or hinders industrialization?," MPRA Paper 4371, University Library of Munich, Germany.
    3. Shafaeddin, Mehdi, 2010. "The rationale for South-South trade; An Alternative Approach," MPRA Paper 26354, University Library of Munich, Germany.
    4. Mehdi Shafaeddin, 2010. "The Political Economy of WTO with Special Reference to NAMA Negotiations," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 22(2), pages 175-196, April.
    5. Shafaeddin, Mehdi, 2009. "Impact of Selectivity and Neutrality of trade Policy Incentives on Industrialization of Developing Countries; Implications for NAMA Negotiations," MPRA Paper 15037, University Library of Munich, Germany.
    6. Shafaeddin, Mehdi, 2009. "NAMA as a Tool of De-industrialization of Africa," MPRA Paper 15050, University Library of Munich, Germany.
    7. Shafaeddin, Mehdi, 2008. "South-South Regionalism And Trade Cooperation In The Asia-Pacific Region," MPRA Paper 10886, University Library of Munich, Germany.
    8. Gokhan Yilmaz, 2011. "Resurgence of Selective Industrial Policy: What Turkey Needs," Working Papers 2011/3, Turkish Economic Association.
    9. Shafaeddin, Mehdi, 2009. "The Impact of the Global Economic Crisis on Industrialization of Least Developed Countries," MPRA Paper 18788, University Library of Munich, Germany.

    More about this item

    Keywords

    Trade policy; industrialization; development; WTO; policy space; trade liberalization; comparative advantage;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • F00 - International Economics - - General - - - General
    • F0 - International Economics - - General
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • N6 - Economic History - - Manufacturing and Construction
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • F1 - International Economics - - Trade

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