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 4: Capability building and industrial diversification

Keun Lee


Structural change, the transformation of a country’s productive structure, has historically been a slow process. This process is what ultimately development is about. For this reason, countries need to nurture it using a variety of policies to deal with the different dimensions of development. Particularly important in this respect is the accumulation of capabilities. These differ across economies depending on whether they need knowledge in simple operational and production areas or have to assimilate advanced technologies. This chapter argues that latecomer countries should implement capability-based industrial policies as they develop and recommends strategies to build capabilities at the various stages of economic development. In particular, developing countries must enhance their capabilities to produce and sell products in international markets to earn foreign currency to pay for imports of investment goods. The challenge is how to increase capabilities, an area of increasing interest in the development and academic communities.

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