Industrial Policy in Developing Countries: Reconsidering the Real Sources of Export-Led Growth

This report examines the trade and industrial policies currently advocated by the major development agencies. It calls for a shift away from the current emphasis on extreme trade liberalization to one that recognizes the role of targeted government policies in promoting balanced economic growth. For the last decade, the less developed countries (LDCs) have been encouraged by the major development agencies simply to open up their markets to imports and to export whatever products they can produce relatively cheaply in the short-term. Many forms of development assistance, ranging from World Bank structural adjustment loans to International Monetary Fund (IMF) assistance to debt relief under the Brady Plan, have been made conditional on this type of "trade liberalization." The operating assumption behind these policies is that successful export-led development can be achieved simply by eliminating LDC government intervention in markets and allowing world market prices to dictate domestic economic incentives.

This report challenges the historical and factual basis for the view that trade liberalization per se is the key to successful export-led growth in developing countries, Based on detailed case studies of the most successful newly industrializing countries (NICs)-South Korea, Taiwan, Singapore, Hong Kong, and Thailand-the report finds that in every case (except Hong Kong) governments have actively intervened in various ways to promote specific types of manufactured exports of ever-increasing technological sophistication. Far from supporting the extreme trade liberalization view, the actual record of these countries demonstrates that successful export-led growth has generally been based on activist trade and industrial policies.

This report does not question the importance of promoting exports for successful development in today's highly integrated world economy But this does not imply that countries should concentrate only on exports of whatever product lines in which they happen to have a current comparative advantage. -Nor does this imply that countries should never restrict imports of goods they could potentially produce efficiently at home-and perhaps eventually export, Indeed, the evidence in this report suggests that development success has often been correlated with deliberate efforts to transform countries' competitive advantages by promoting those manufactured exports which allow domestic producers to move up the technology and skill "ladders."

  • Authors: Stephen C Smith
  • Year: 1991
  • Organisation: Economic Policy Institute
  • Publisher: Economic Policy Institute
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