Development and Modern Industrial Policy in Practice

Development and Modern Industrial Policy in Practice

Issues and Country Experiences

Edited by Jesus Felipe

Development and Modern Industrial Policy in Practice provides an up-to-date analysis of industrial policy. Modern industrial policy refers to the set of actions and strategies used to favor the more dynamic sectors of the economy. A key aspect of modern industrial policy is embedding private initiative in a framework of public action to encourage diversification, upgrading, and technological dynamism to achieve development in the twenty-first century. The book reviews key questions that policymakers ask about industrial policy, such as: who selects sectors; what is the rationale for sector selection; what are the main tools to promote sectors; what is the role of human capital; and what are the mechanisms for monitoring and evaluation? Expert contributors discuss how to undertake industrial policy effectively and examine the experiences of Australia, the EU, the Republic of Korea, Malaysia, and the US.

Chapter 1: Modern industrial policy

Jesus Felipe

Subjects: economics and finance, industrial economics, industrial organisation, politics and public policy, public policy, social policy and sociology, labour policy


The development landscape of the twenty-first century will be significantly different from that of the second half of the twentieth century, when a small group of economies (mostly in Asia) made significant progress and some achieved high-income status. The emergence of India and the People’s Republic of China (PRC), the development of many new labor-saving technologies, the fact that developed countries will not be keen on running deficits that facilitate export-led growth and that the World Trade Organization places severe restrictions on developing countries to conduct industrial policies (widely used earlier) mean that reproducing what this small group of economies did will be next to impossible in the coming decades. For these reasons, policymakers in developing countries need to understand that the key to achieving high-income status will be to induce rapid structural change by moving from traditional primary products to nontraditional industrial products, and to find niches in industrial products, consumer products with high-income elasticities of demand, and modern services.