Development and Modern Industrial Policy in Practice
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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.
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Chapter 2: Issues in modern industrial policy (I): sector selection, who, how, and sector promotion

Jesus Felipe and Changyong Rhee


How should countries, particularly developing countries, design their industrial policy programs and strategies in the twenty-first century? Answering this requires an understanding of the essence of modern industrial policy. In these days of fully fledged globalization, it could be argued that industrial policies—understood as a set of restructuring policies in favor of more dynamic activities in general—have actually become obsolete. In this context, targeting policy interventions on picking sectors should be discouraged. However, a key argument of this book is that modern industrial policy is about collaboration between public and private sectors to identify significant externalities and address them in the right way. Here, economic development is not a natural process, but one subject to significant coordination and information externalities. Industrial restructuring today does not take place without significant government assistance, and firms, of course, do not need to manufacture an entire product. By operating as part of global value chains, it is possible for firms to participate in the production of a great number of products (Asian Development Bank 2013). Governments, for their part, can play an important role in facilitating this process.

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