Industrial Policy in Developing Countries

Industrial Policy in Developing Countries

Failing Markets, Weak States

Tilman Altenburg and Wilfried Lütkenhorst

Against the backdrop of persistently high levels of poverty and inequality, critical environmental boundaries and increasing global economic interdependence, this book addresses the role and impact of industrial policies in developing countries. Accepting the reality of both market failure and policy failure, it identifies the conditions under which industrial policy can deliver socially desirable results. General conclusions on the political economy of development are complemented by country case studies covering Ethiopia, Mozambique, Namibia, Tunisia and Vietnam.

Chapter 3: Industrial policy for social inclusion

Tilman Altenburg and Wilfried Lütkenhorst

Subjects: development studies, development economics, economics and finance, development economics, industrial economics


Achieving inclusive growth is a goal with various manifestations. On the one hand, there is the aspect of fostering a production system that is inclusive in the sense of being integrated and closely interlinked – as opposed to a dualistic (or otherwise fragmented) system with only very weak economic relations between large formal enterprises and small, often informal enterprises. On the other hand, inclusiveness refers to different dimensions in the distribution of economic gains, ranging from functional income distribution (between labour and capital) to distribution among different population groups (e.g. gender-related or based on ethnicity) and the extent of regional disparities. Following a brief introduction on the current global concern about rising inequality levels (Section 3.1), we will explore two approaches that have been applied to achieve greater inclusiveness of economic development. Section 3.2 focuses on small and medium enterprises and labour-intensive production while Section 3.3 deals with spatial redistribution. Empirical evidence shows that in recent years levels of income inequality have been rising in the majority of countries worldwide. Between 1990 and 2008 (based on a sample of 141 countries), this is true for 90 per cent of high-income countries, 90 per cent of countries in Eastern Europe and Central Asia and two thirds of South and Southeast Asian countries (Ortiz and Cummins 2011). While sub-Saharan African countries have mostly seen decreasing inequality, most OECD countries exhibit rising Gini coefficients, including in traditionally low-inequality countries like Germany and the Nordic states (OECD 2011).

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