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International Handbook on Industrial Policy

Edited by Patrizio Bianchi and Sandrine Labory

This timely and much-needed Handbook reconsiders an old topic from a fresh perspective, raising a number of new, interesting and worthwhile issues in the wake of ten years of globalization. This comprehensive analysis illustrates that old-style industrial policies whereby the government directly intervened in markets, and was often the producer itself, are no longer relevant. Structural changes occurring in economies – summarized in the term ‘globalization’ – are triggering the definition and implementation of new industrial policies. The contributors, leading experts in their field, unite to evaluate this shift of over a decade ago.
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Chapter 4: Industrial Policy in Developing Countries: What Can We Learn from East Asia?

Sanjaya Lall


Sanjaya Lall 1 Introduction There is growing concern with industrial competitiveness in all economies.1 The intense pressures created by rapid and inexorable technical change, falling transport and communication costs (‘shrinking economic distance’), widespread liberalization and the spread of global production networks (with large shifts in the location of production: see Dicken, 1999) are posing difficult challenges everywhere. While it is the advanced industrial countries that are the most active in mounting competitiveness strategies, the real concern – and the intensity of the underlying threat – is greatest in the developing world. Many poor countries, particularly the least developed ones, are failing to compete internationally and, as a result, are suffering low or negative growth rates of manufacturing as they liberalize (Lall, 2001; UNIDO, 2002). However, this is not universal. Some developing countries are succeeding, often quite dramatically: it is therefore not the case that globalization, technical change and liberalization per se are harmful. The issue is how countries cope with these forces. The fault, if that is the right term, lies more in the countries than in the external environment, but the external environment also exerts immense pressures that constrain the ability of countries to become more competitive. This is the topic of this chapter. What determines whether and how countries become internationally competitive? The view that dominates mainstream policy thinking is that they become competitive by resorting to free markets. The best strategy for developing countries is to remove government interventions in markets, provide a stable macroeconomic setting and...

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