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Public policy and industrial transformation in the process of development

Author

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  • Agenor, Pierre-Richard
  • Dinh, Hinh T.

Abstract

This paper studies the role of public policy in promoting industrial transformation from an imitationbased, low-skill economy to an innovation-based, high-skill economy, where technological progress now occurs through the domestic invention of ideas. Industrial transformation is measured by changes in an index of industrial structure, defined as the ratio of the variety of imitation- to innovation-based intermediate goods. A key mechanism through which productivity increases initially in both the imitation and innovation sectors is through a knowledge externality associated with learning by doing in the imitation sector. The process of industrialization increases the demand for high-skill labor, inducing individuals to invest in education. The model also emphasizes the distinction between basic or core infrastructure, which promotes imitation, and advanced infrastructure, which promotes innovation. A calibrated version for a low-income country is used to perform several policy experiments, including an increase in investment in infrastructure, a reduction in the cost of training, and improved enforcement of property rights.

Suggested Citation

  • Agenor, Pierre-Richard & Dinh, Hinh T., 2013. "Public policy and industrial transformation in the process of development," Policy Research Working Paper Series 6405, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6405
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    References listed on IDEAS

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    2. Agénor, Pierre-Richard & Bayraktar, Nihal & El Aynaoui, Karim, 2008. "Roads out of poverty? Assessing the links between aid, public investment, growth, and poverty reduction," Journal of Development Economics, Elsevier, pages 277-295.
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    4. Afonso, Óscar & Thompson, Maria, 2011. "Costly investment, complementarities and the skill premium," Economic Modelling, Elsevier, vol. 28(5), pages 2254-2262, September.
    5. Lorenczik, Christian & Newiak, Monique, 2012. "Imitation and innovation driven development under imperfect intellectual property rights," European Economic Review, Elsevier, vol. 56(7), pages 1361-1375.
    6. Perez-Sebastian, Fidel, 2007. "Public support to innovation and imitation in a non-scale growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 31(12), pages 3791-3821, December.
    7. Colin Davis, 2013. "Regional integration and innovation offshoring with occupational choice and endogenous growth," Journal of Economics, Springer, vol. 108(1), pages 59-79, January.
    8. Pietro Cova & Massimiliano Pisani & Alessandro Rebucci, 2010. "Macroeconomic Effects of China’s Fiscal Stimulus," Research Department Publications 4689, Inter-American Development Bank, Research Department.
    9. Crespi, Gustavo & Zuniga, Pluvia, 2012. "Innovation and Productivity: Evidence from Six Latin American Countries," World Development, Elsevier, vol. 40(2), pages 273-290.
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    12. Baldacci, Emanuele & Hillman, Arye L. & Kojo, Naoko C., 2004. "Growth, governance, and fiscal policy transmission channels in low-income countries," European Journal of Political Economy, Elsevier, pages 517-549.
    13. Pedro R.D. Bom & Jenny E. Ligthart, 2014. "What Have We Learned From Three Decades Of Research On The Productivity Of Public Capital?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 889-916, December.
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    Cited by:

    1. Agénor, Pierre-Richard & Dinh, Hinh T., 2015. "Social capital, product imitation and growth with learning externalities," Journal of Development Economics, Elsevier, pages 41-54.
    2. Agenor, Pierre-Richard & Dinh, Hinh, 2013. "From Imitation to Innovation: Public Policy for Industrial Transformation," World Bank - Economic Premise, The World Bank, issue 115, pages 1-8, May.
    3. repec:ocp:dbbook:9-789954-971727 is not listed on IDEAS
    4. Pierre-Richard Agénor & Karim El Aynaoui, 2014. "Politiques Publiques, Transformation Industrielle, Croissance et Emploi au Maroc : Une Analyse Quantitative [Public Policy, Industrial Transformation, Growth and Employment in Morocco: A Quantitative ," Research papers & Policy papers 1403, OCP Policy Center.

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    Keywords

    Labor Policies; Economic Theory&Research; Political Economy; Debt Markets; Labor Markets;

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