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 6: What is special about industrial policy in developing countries?

Tilman Altenburg and Wilfried Lütkenhorst

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


As pointed out in Chapter 1, most of the empirical evidence on the effectiveness of industrial policies originates from OECD countries, from the first generation of newly industrialising countries in Asia – in particular South Korea (OECD member since 1996), Taiwan and Singapore – or from upper-middle-income countries such as Argentina, Brazil, Chile, Malaysia, Mexico (OECD member since 1994), South Africa and Turkey. Industrialisation in these countries builds on political systems with relatively well-established rules and regulations, reasonable administrative capabilities and a substantial degree of private sector development. Much less empirical literature is available for low- and lower-middle-income countries, although most developing countries belong to these categories. According to the World Bank country classification, 34 countries are in the ‘low-income’ group (up to US$1,045 gross national income (GNI) per capita in 2013) and another 50 countries in the ‘lower-middle-income’ category (US$1,046–4,125) – while 55 countries are classified as having upper-middle-income status (US$4,126–12,745). Industrial development strategies of countries at relatively low income levels are often inspired by, or even modelled after, policies that have been applied in countries with higher income levels and rather mature institutions. However, a variety of contextual factors need to be taken into account, which call for a customisation of industrial policies to the particular conditions prevailing in comparatively poor countries. This chapter starts with elaborating on the main dimensions of context-specificity (Section 6.1), which are then addressed more specifically in the sections that follow.

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