Industrial Policy: Don't Ask Why, Ask How

Middle East Development Journal, Vol. 1, Issue 1, pp. 1-29, 2009

Posted: 11 Nov 2009

See all articles by Dani Rodrik

Dani Rodrik

Harvard University - Harvard Kennedy School (HKS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: June 2009

Abstract

The theoretical case for industrial policy is a strong one. The market failures which industrial policies target - in markets for credit, labor, products, and knowledge - have long been at the core of what development economists study. The conventional case against industrial policy rests on practical difficulties with its implementation. Even though the issues could in principle be settled by empirical evidence, the evidence to date remains uninformative. But the traditional informational and bureaucratic constraints on the exercise of industrial policy are not givens; they can be molded and rendered less binding through appropriate institutional design. Three key design attributes that industrial policy must possess are embeddedness, carrots-and-sticks, and accountability. A review of industrial policy in three non-Asian settings - El Salvador, Uruguay, and South Africa - highlights the extensive amount of industrial policy that is already being carried out and frames the need for industrial policy in the specific circumstances of individual countries. Some implications for the Middle East are discussed.

Keywords: Industry, economic growth, policy

Suggested Citation

Rodrik, Dani, Industrial Policy: Don't Ask Why, Ask How (June 2009). Middle East Development Journal, Vol. 1, Issue 1, pp. 1-29, 2009. Available at SSRN: https://ssrn.com/abstract=1503788

Dani Rodrik (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

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HOME PAGE: http://www.ksg.harvard.edu/rodrik/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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