“Industrial Policy and Development: A Political Economy Perspective,” (2011) in Justin Yifu, Lin and Boris Pleskovic eds. Annual World Bank Conference on Development Economics 2010: Lessons from the East Asia and the Global Financial Crisis, Washington: World Bank.

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Industrial Policy and Development: A Political Economy Perspective

In this paper I discuss the role of industrial policy in development. I make five arguments. First, from a theoretical point of view there are good grounds for believing that industrial policy can play an important role in promoting development. Second, there certainly are examples where industrial policy has played this role. Third, for every such example there are others where industrial policy has been a failure and may even have impeded development. Fourth, the difference between these second and third cases rests in the politics of policy. Industrial policy has been successful when those with political power who have implemented the policy have either themselves directly wished for industrialization to succeed, or been forced to act in this way by the incentives generated by political institutions. These arguments imply that we need to stop thinking of normative industry policy and instead begin to develop a satisfactory positive approach if we are ever to help poor countries to industrialize.