Issues and Country Experiences
Edited by Jesus Felipe
Chapter 2: Issues in modern industrial policy (I): sector selection, who, how, and sector promotion
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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