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Edited by Patrizio Bianchi and Sandrine Labory
Chapter 4: Industrial Policy in Developing Countries: What Can We Learn from East Asia?
Sanjaya Lall 1 Introduction There is growing concern with industrial competitiveness in all economies.1 The intense pressures created by rapid and inexorable technical change, falling transport and communication costs (‘shrinking economic distance’), widespread liberalization and the spread of global production networks (with large shifts in the location of production: see Dicken, 1999) are posing diﬃcult challenges everywhere. While it is the advanced industrial countries that are the most active in mounting competitiveness strategies, the real concern – and the intensity of the underlying threat – is greatest in the developing world. Many poor countries, particularly the least developed ones, are failing to compete internationally and, as a result, are suﬀering low or negative growth rates of manufacturing as they liberalize (Lall, 2001; UNIDO, 2002). However, this is not universal. Some developing countries are succeeding, often quite dramatically: it is therefore not the case that globalization, technical change and liberalization per se are harmful. The issue is how countries cope with these forces. The fault, if that is the right term, lies more in the countries than in the external environment, but the external environment also exerts immense pressures that constrain the ability of countries to become more competitive. This is the topic of this chapter. What determines whether and how countries become internationally competitive? The view that dominates mainstream policy thinking is that they become competitive by resorting to free markets. The best strategy for developing countries is to remove government interventions in markets, provide a stable macroeconomic setting and...
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