«January 16, 2006 Howard Pack Kamal Saggi The Wharton School Department of Economics University of Pennsylvania Southern Methodist University 1400 ...»
Other policy questions arise. Will government sponsored clusters be as effective in generating sustained improvements in product development, quality upgrading, and growing efficiency in order to continue to compete on the world market or will firms within clusters improve faster by becoming part of networks. There is some anecdotal evidence that international networks attempt to limit the extent of upgrading, especially in higher value added segments of design. If this is so, one is back to a situation of deciding whether to promote specific activities within the entire production nexus but this is beyond the capacity of all but the most competent of governments.31 Taiwan’s experience in the Hsinchu Science Park may be provide a counter-example, so far unconfirmed by systematic evidence.
5. Concluding remarks Does the current policy landscape of the multilateral trading system even permit developing countries to pursue industrial policy? Should it? It is clear that developing countries today have to contend with several multilateral agreements that the rich countries did not have to when they themselves were developing. Have the constraints and disciplines imposed by WTO agreements such as TRIPS and the TRIMS become too restrictive to allow developing countries to chart their most preferred course to economic development? This is a difficult question but it cannot be dismissed out of hand.
Certainly the international policy environment today imposes constraints on the use of national policies that were absent even 15 years ago and the constraints are backed by the potent dispute settlement procedure of the WTO.32 The experience in a number of countries in the last two decades suggests that private firms have often been successful in pursuing learning strategies that earlier analysts were advocating. The growth of the Indian software sector, Bangladesh’s clothing industry, and China’s special economic zones was driven primarily by private sector agents (often from abroad). In the first two the main role of the government was benign neglect while in the latter the Chinese imitated the earlier success of Singapore by enabling the location of foreign investment in enclaves that were well provided with infrastructure. Much of the earlier investments came from overseas Chinese.
There was not a government policy in any of these cases that identified individual firms or industries with high learning potential and likely spillovers. In Bangladesh and China foreign firms brought standard technology but importantly extensive marketing networks. Standard comparative advantage can explain the pattern of sector choice.
Compared with the exceptionally complex process of either picking sectors (or firms) or the process of allowing firms to identify their own competitive advantage, it seems much A good discussion of this issue is contained in Humphrey and Schmitz (2002).
For further discussion see Noland and Pack (2003), Chapter 5.
more efficient in the current state of intensifying world competition and the growing importance of extensive and complex supply networks to allow foreign firms to facilitate the reduction of costs in the host economy. This would suggest a change in focus from even the new industrial policy to one that focused on negotiation with multinational firms on issues ranging from environmental regulation and taxes to efforts to insuring local learning. The difficulty with this approach is the limited amount of FDI going to LDCs – many countries in Africa, the Middle East, and Latin America continue to receive very little. This may be due to their overall economic prospects given their policies. But in these economies hewing to some of the major tenets of the Washington Consensus while recognizing some of its weaknesses, might prove a better investment of limited government competence and legitimacy, than the extraordinarily complex strategies required by either the new or old industrial policy.
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