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International Handbook on Industrial Policy

Edited by Patrizio Bianchi and Sandrine Labory

This timely and much-needed Handbook reconsiders an old topic from a fresh perspective, raising a number of new, interesting and worthwhile issues in the wake of ten years of globalization. This comprehensive analysis illustrates that old-style industrial policies whereby the government directly intervened in markets, and was often the producer itself, are no longer relevant. Structural changes occurring in economies – summarized in the term ‘globalization’ – are triggering the definition and implementation of new industrial policies. The contributors, leading experts in their field, unite to evaluate this shift of over a decade ago.
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Chapter 2: Emerging Issues in the New Economy and Globalization

Ashish Arora and Alfonso Gambardella


Ashish Arora and Alfonso Gambardella 1 Introduction The 1990s have raised new issues for industrial development, and hence for industrial policy, following the opportunities opened up by information technology (IT) and the socalled ‘new economy’. In this chapter we look at one phenomenon observed at the global level which we employ as a case for discussing some broader questions. This is significant growth of software production in some emerging economies. Its peculiarity is that such a spectacular development has occurred in regions where one would have hardly predicted the rise of human capital-intensive activities. We will discuss software growth in five countries – Brazil, China, India, Ireland and Israel – following a two-year research that we coordinated on this topic (Arora and Gambardella, 2005a). As we shall see, the phenomenon is certainly striking. For example, a country like India had practically no software production in the late 1980s and it is now a leading world exporter in this industry. Most importantly, the story of software growth in these regions exemplifies some relevant new questions for industrial development and policy. As a basis of our analysis we rely on some recent innovative contributions on industrial policy and related subjects. Gomory and Baumol (2000) have argued that the theory of comparative advantages, as a basis for understanding trade and specialization across countries, is at best indeterminate. We will discuss their contention that, even if we restrict the potential specializations of a country or region to fields in which they have comparative advantages,...

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