Industrial Policy and Growth

The paper reviews the impact of industrial policy on growth in developing countries from the 1960s until the present. This is a propitious time to conduct such an assessment. Within policy-making and academic circles, extremely critical views of state intervention in general, and industrial policy in particular, are no longer as dominant, and have given way to more nuanced approaches. This opening allows for a reassessment of earlier policies from today's vantage point, as well as reflection about new challenges posed by global production and constrained policy options.

The paper highlights on how the rationales, objectives, and instruments of industrial policy, along with the criteria for success, have changed over this time period. In the 1960s, for example, the operating assumption was that increasing investment in industry via imported capital and technology would lead to structural change and a self-sustaining growth path. Subsequently, these basic assumptions were challenged by experience, by new theories about states and markets, as well as by the changing international environment. The emphasis of industrial policies shifted from infant industry creation and factor accumulation to international competitiveness and more recently, learning and institutional capabilities.

The paper also makes an explicit comparison between the strategies of East Asia and Latin America. These are the most industrialized regions within the developing world, accounting for 80% of manufacturing value added (Lall, Albaladejo, and Moreira, 2004). East Asia's income and manufacturing growth rates have surpassed those of Latin America, and much of the literature on industrial policy engages in explicit comparison between the regions and offers explanations for their diverging performance. Although the explanations for East Asia's relative success have changed over time, as well as the subsequent policy recommendations, the region's strategy is still held up as the dominant paradigm to which Latin America and other areas are compared and found lacking.

  • Authors: Helen Shapiro
  • Year: 2005
  • Organisation: United Nations DESA
  • Publisher: United Nations Publication
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