On the Importance of Openess for Industrial Policy Design in Developing Countries
SERIES Working Paper No. 14
Posted: 25 May 2011
Date Written: January 23, 2007
How should industrial policy be designed in developing countries? Should industrial policy be targeted to a few sectors or be more broad based and therefore more neutral? Our theoretical analysis demonstrates that access to foreign markets is key to answering this question. We show that in a less open economy, industrial policy should be targeted, while in a more open economy, broad based policies are likely to be more effective. One implication of this result is that deregulation is likely to be more successful in a relatively open economy than in a more closed economy. Indeed, deregulation with limited foreign market access may lead to industrialization. We provide empirical results that support these predictions.
Keywords: Industrialization, policy design, policy reform, economic growth, openess
JEL Classification: F15, O14, O20
Suggested Citation: Suggested Citation