Normalizing Industrial Policy

The theoretical case for industrial policy is a strong one. The market failures that industrial policies target in markets for credit, labor, products, and knowledge have long been at the core of what development economists study. The conventional...

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Bibliographic Details
Main Author:	Rodrik, Dani
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2017
Subjects:	ACCOUNTABILITY ACCOUNTING ADVERSE EFFECTS AGENCY PROBLEMS AGRICULTURE ALLOCATION ALTERNATIVE USE ANTI-CORRUPTION ASSETS ASYMMETRIC INFORMATION BANK CREDIT BANK LENDING BANKS BARGAINING BENCHMARKING BENCHMARKS BENEFICIARIES BENEFICIARY BID BUSINESS CYCLE BUSINESSMEN CENTRAL BANK CENTRAL BANK INDEPENDENCE CLIMATE CLIMATE CHANGE COLLAPSE COLLATERAL COLLECTIVE ACTION COMMERCIAL BANKS COMPETITIVENESS CONFIDENCE CONSUMER PROTECTION COORDINATION FAILURES CORRUPTION COST-BENEFIT COST-BENEFIT ANALYSIS CREDIT CONSTRAINT CREDIT CONSTRAINTS CREDIT MARKET CREDIT PROGRAM CREDIT SUBSIDIES CREDITORS CURRENCY CURRENCY DEPRECIATION DEBT DEMOCRACY DEREGULATION DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPMENT BANK DEVELOPMENT ECONOMICS DEVELOPMENT STRATEGY DIMINISHING RETURNS DIRECTED CREDIT DIVERSIFIED PORTFOLIO DOMESTIC PRODUCTION DYNAMICS OF GROWTH ECONOMETRICS ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC DIVERSIFICATION ECONOMIC GROWTH ECONOMIC HISTORY ECONOMIC OUTCOMES ECONOMIC PERFORMANCE ECONOMIES OF SCALE EQUIPMENT EXCHANGE RATE EXPENDITURES EXPORT PERFORMANCE EXPORTS EXTERNAL FINANCE EXTERNALITIES FACE VALUE FEASIBILITY FEASIBILITY STUDIES FINANCIAL LOSSES FINANCIAL MARKET FINANCIAL MARKETS FIRM PERFORMANCE FISCAL POLICIES FISCAL POLICY FOREIGN DIRECT INVESTMENT FOREIGN INVESTMENT FOREIGN INVESTORS GDP GDP PER CAPITA GLOBALIZATION GOOD GOVERNANCE GOVERNMENT INTERVENTION GOVERNMENT POLICY GOVERNMENT SUPPORT GROWTH RATE GROWTH THEORY HOLDING HOST COUNTRIES HUMAN CAPITAL IMPORT SUBSTITUTION IMPORTS INCOME INCOME LEVELS INFANT INDUSTRY ARGUMENT INFLATION INFORMATIONAL ASYMMETRIES INFORMATIONAL ASYMMETRY INITIATIVE INNOVATION INNOVATIONS INSTRUMENT INSURANCE INTELLECTUAL PROPERTY INTEREST RATES INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INVESTING INVESTMENT BANK INVESTMENT CLIMATE INVESTMENT FINANCE INVESTMENT OPPORTUNITIES JOBS LABOR MARKET LABOR TURNOVER LAWS LOW UNEMPLOYMENT MACROECONOMIC INSTABILITY MACROECONOMIC POLICIES MACROECONOMIC STABILIZATION MACROECONOMICS MARGINAL COSTS MARKET ANALYSTS MARKET DISCIPLINE MARKET ENVIRONMENTS MARKET FAILURE MARKET FAILURES MARKET SHORTCOMINGS MICROFINANCE MINISTER MONETARY POLICY MULTINATIONAL MULTINATIONALS NATIONAL OUTPUT OPPORTUNITY COST OUTPUTS PENSION PENSION SYSTEMS PENSIONS PERFORMANCE STANDARDS POLICY MAKERS POLICY RESPONSE POLITICAL ECONOMY POLITICIAN POLITICIANS PORTFOLIO POSITIVE EFFECTS POSITIVE EXTERNALITIES POTENTIAL INVESTMENT PREFERENTIAL PRINCIPAL-AGENT PRIVATE INVESTMENT PRIVATE LENDERS PRIVATIZATION PROCUREMENTS PRODUCTION COSTS PRODUCTIVITY PRODUCTIVITY GROWTH PROPERTY RIGHTS PUBLIC FINANCES PUBLIC INFORMATION REAL EXCHANGE RATE REAL EXCHANGE RATES REAL WAGES RELATIVE PRICE REMEDIES REMEDY REMITTANCES RENEGOTIATION RENTS RESOURCE ALLOCATION RETURN RETURNS RISK CAPITAL RISK MARKETS SAFETY SAFETY NETS SOCIAL COHESION SOURCE OF CREDIT STOCKS STRUCTURAL CHANGE SUPPLIERS TAX TAX CODE TAX CREDITS TAX INCENTIVES TAX REGIME TAX TREATMENT TOTAL FACTOR PRODUCTIVITY TRADE BARRIERS TRADE LIBERALIZATION TRADE POLICIES TRADE PROTECTION TRANSPARENCY TURNOVER UNDERVALUATION UNEMPLOYED UNEMPLOYMENT UNSKILLED LABOR VALUE ADDED WAGES WHITE ELEPHANTS WITHDRAWAL WORLD TRADE ORGANIZATION WTO
Online Access:	http://documents.worldbank.org/curated/en/524281468326684286/Normalizing-industrial-policy http://hdl.handle.net/10986/28009

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Summary:	The theoretical case for industrial policy is a strong one. The market failures that 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. Moreover, the conceptual difficulties involved in statistical inference in this area are so great that it is hard to see how statistical evidence could ever yield a convincing verdict. 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. 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.

Normalizing Industrial Policy

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