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 8: Industrial diversification in the People’s Republic of China

Justin Yifu Lin, Cheryl Xiaoning Long and Xiaobo Zhang


Until about 1980, the People’s Republic of China (PRC) was a closed, centrally planned economy. It has since become a vibrant, open, market-oriented economy that produces and exports a wide range of labor-and capital-intensive goods. Quite rightly, the PRC is regarded as the ‘world’s factory.’ At first glance, this expanding product range suggests that its economic structure has become more diversified, lending support to the findings of the influential study by Imbs and Wacziarg (2003), which argues that diversification tends to occur in the early stages of development. Using data from the China Industrial Census 1995 and the China Economic Census 2004, this chapter investigates whether diversification has occurred in the early stages of the PRC’s development. We find, surprisingly, that industrial production has actually become increasingly specialized, with the economy becoming less diversified at both the national and regional levels during 1995–2004.

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