Growth Identification and Facilitation: The Role of the State in the Dynamics of Structural Change

35 Pages Posted: 20 Apr 2016

See all articles by Justin Y. Lin

Justin Y. Lin

Peking University - China Center for Economic Research

Celestin Monga

World Bank - Research Department

Date Written: January 1, 2011

Abstract

Active economic policies by developing countries? governments to promote growth and industrialization have generally been viewed with suspicion by economists, and for good reasons: past experiences show that such policies have too often failed to achieve their stated objectives. But the historical record also indicates that in all successful economies, the state has always played an important role in facilitating structural change and helping the private sector sustain it across time. This paper proposes a new approach to help policymakers in developing countries identify those industries that may hold latent comparative advantage. It also recommends ways of removing binding constraints to facilitate private firms? entry into those industries. The paper introduces an important distinction between two types of government interventions. First are policies that facilitate structural change by overcoming information and coordination and externality issues, which are intrinsic to industrial upgrading and diversification. Such interventions aim to provide information, compensate for externalities, and coordinate improvements in the "hard" and "soft" infrastructure that are needed for the private sector to grow in sync with the dynamic change in the economy?s comparative advantage. Second are those policies aimed at protecting some selected firms and industries that defy the comparative advantage determined by the existing endowment structure?either in new sectors that are too advanced or in old sectors that have lost comparative advantage.

Suggested Citation

Lin, Justin Yifu and Monga, Célestin, Growth Identification and Facilitation: The Role of the State in the Dynamics of Structural Change (January 1, 2011). World Bank Policy Research Working Paper No. 5313, Available at SSRN: https://ssrn.com/abstract=1611526

Justin Yifu Lin (Contact Author)

Peking University - China Center for Economic Research ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Célestin Monga

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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