Open Economy Industrial policy in Latin America and the Caribbean

This paper summarizes the case for open economy industrial policy (OEIP) in Latin America and the Caribbean and responds to potential objections, namely, endogeneity, selection bias, and anachronism. The paper argues that OEIPs are more likely to provoke an export supply response and unlikely to be captured than their closed economy predecessors. It is stated in the paper that infant exporters who take advantage of export subsidies are more likely to mature and less likely to conspire against the public interest than infant industrialists who take advantage of tariffs and quotas. Public officials who subsidize economic activity are more vulnerable to fiscal pressure and less susceptible to political pressure than public officials who tax economic activity. Public and private officials who conspire to invade international markets are more likely to provoke and less likely to overcome retaliation than public and private officials who conspire to defend their own markets. It is further argued that the three mechanisms in operation tend to interact and limit the likelihood of OEIP capture.

  • Authors: Andrew Schrank & Marcus Kurtz
  • Year: 2006
  • Organisation: LSE/ISA
  • Publisher: n/a
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