Industrial Policy, Information, and Government Capacity

33 Pages Posted: 12 May 2017

See all articles by William F. Maloney

William F. Maloney

World Bank - Poverty and Economic Management Unit; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Gaurav Nayyar

University of Oxford

Date Written: May 11, 2017

Abstract

Governments are resource and bandwidth constrained, and hence need to prioritize productivity-enhancing policies. To do so requires information on the nature and magnitude of market failures on the one hand, and government's capacity to redress them successfully on the other. The paper reviews perspectives on vertical (sectoral) and horizontal (factor markets, cluster) policies with an eye to both criteria. It first argues that the case for either cannot be made on the basis of the likelihood of successful implementation: for instance, educational and picking the winner types of policies both run the risks of capture and incompetent execution. However, the profession has been able to establish more convincing market failures for horizontal policies than for vertical policies. Most of the recent approaches to identifying failures around particular goods, the paper argues, are of limited help. Hence, for a given difficulty of execution, the former are generally to be preferred. A second critical message is that improving the quality of governance in terms of collecting information, coordination ability, and defending against capture is critical to successful implementation of productivity policies and should be central on the policy agenda.

Suggested Citation

Maloney, William F. and Nayyar, Gaurav, Industrial Policy, Information, and Government Capacity (May 11, 2017). World Bank Policy Research Working Paper No. 8056. Available at SSRN: https://ssrn.com/abstract=2967043

William F. Maloney (Contact Author)

World Bank - Poverty and Economic Management Unit ( email )

1818 H Street NW
Washington, DC 20433
United States
202-473-6340 (Phone)
202-522-0054 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Gaurav Nayyar

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

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