Failing Markets, Weak States
Chapter 6: What is special about industrial policy in developing countries?
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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