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«University Press Scholarship Online International Development: Ideas, Experience, and Prospects Bruce Currie-Alder, Ravi Kanbur, David M. Malone, and ...»

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Transparency and accountability Industrial policy should be clear as to which specific measures are included and who is responsible for what. This serves two purposes: it reduces the possibility of rent-seeking activities, and it clarifies responsibilities as well as incentives for bureaucrats. Industrial policy has a strong selective component that can be justified only if the process behind its design and implementation is transparent and the government is considered responsible for it.

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Evaluation A crucial component of a successful industrial policy is a monitoring and evaluation mechanism.

The evaluation of policy measures can be very complicated because it is difficult to decide what has to be measured and how to measure it. Yet there is no doubt that policy evaluation is crucial, because it provides information that can be used to improve the policies. Without evaluation, there is no mechanism for adjusting and correcting the policies in response to changing circumstances.

Industrial policy as a process Industrial policy is not only a set of measures, but a process through which the government learns which policy mix is optimal given the current and expected future economic situation (see Rodrik 2007). This is why, while the past and current experiences of other countries can provide some insights, each country must find its own way in designing its industrial policy. The dynamic nature of the determining optimal policy implies that its content and objectives need to

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be continuously re-evaluated and updated—considering the results obtained—under the constraints provided by the available resources and capabilities.

While these are general elements that should characterize IP, the new approach also explicitly recognizes that policies cannot


from the current economic situation of the specific country—in other words, from its production structure. This obviously means that IP should be designed to consider the available capabilities both in the government and in the private sector.

As a minimizing failure rule (safety rule), current available capabilities should guide the type and extent of IP to be carried on. In addition, IP should be modeled in accordance with the characteristics of entrepreneurship in the specific country. To be successful, the new approach needs to consider all these elements together.

Conclusion After a long hiatus, IP is making its way back onto developing countries’ agenda. In recent years, a large and increasing agreement is emerging that strengthening industry, particularly manufacturing, is the condition required to benefit from world trade and foster economic growth

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and development. This renewed interest in industrial policy follows from that, and IP is once again being viewed as a potentially effective instrument in inducing structural change and the growth of manufacturing.

Industrial policy is back but the world economy and the rules of the game have changed. This implies that a new approach is needed. The recent literature agrees that there is no single recipe for the optimal industrial policy. Rather, the emerging consensus is that effective industrial policy needs to be a mix of common practices and country-specific measures in which past experiences and domestic experimentation are both essential components.

While the economic literature on IP is vast, there is still much to be learned in terms of both theory and empirics. One aspect concerning theory that needs to be further explored is the political economy of industrial policy. The history of a country, its economic characteristics, and the political environment all determine what type of industrial policy is feasible and possible to implement. While some contributions have already opened this Pandora’s box, there is still much to learn about how the political equilibrium and other country-specific characteristics interact with industrial policy. As for the empirics, a promising approach is the use of randomized controlled experiments. Even if there are still very few such analyses, this approach—if coupled

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with the precious knowledge coming from detailed case studies and cross-country comparative analysis—could significantly improve our understanding of the characteristics of an effective industrial policy. This would be a very important achievement since, now more than ever, a better understanding of the theory and empirics of IP would contribute to designing better strategies for development.

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Harrison, Ann (1994). “An Empirical Test of the Infant Industry Argument: Comment,” American Economic Review, 84(4): 1090–95.

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Szirmai, Adam (2011) “Industrialisation as an Engine of Growth in Developing Countries, 1950 Structural Change and Economic Dynamics 23(4):406–20.

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I extend my sincere thanks to the editors, contributors, and Philipp Neuerburg for useful comments on a previous version of the chapter.

Szirmai (2011) provides empirical evidence on the fundamental role of the manufacturing sector in the process of development.

Rodrik (2004) notes that direct support is not always necessary to solve this type of market failure.

Key references include Amsden (2001); Lin and Chang (2009); Cimoli, Dosi and Stiglitz (2009); Rodrik (1995, 2004, 2007); Wade (2003); Soludo, Ogbu, and Chang (2004).

It is very instructive to see how different are the conclusions reached by Krueger and Tuncer (1982) and Harrison (1994).

There is extensive literature suggesting that the Developmental State has been quite successful in inducing industrialization in East Asia, where the level of industrialization in the 1950s was lower than in Latin America (Amsden 1989, 2001; Wade 2003).

On the origins and causes of the African debt crisis, see UNCTAD (2007).

Similarly, the TRIPS agreement is making it increasingly difficult for developing countries to access advanced technology since it forbids copying and reverse engineering, two activities that have been important for technology accumulation in developing countries during the Developmental State period (see, e.g., the South Korean case) (Amsden 2000).

Note that these concerns may be somewhat misplaced. In fact the evidence on the positive effect of trade restrictions on manufacturing growth is at best mixed. For instance, the results of protectionist trade policy per se on domestic technological accumulation has in general been quite poor in most developing countries (Rodrik 2004).

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