Working Paper: CEPR ID: DP4767
Authors: Dani Rodrik
Abstract: Unlike what is commonly believed, the last two decades have not witnessed the twilight of industrial policy. Instead, incentives and subsidies have been refocused on exports and direct foreign investment, in the belief that these activities are the source of significant positive spillovers. The challenge in most developing countries is not to rediscover industrial policy, but to redeploy it in a more effective manner. This paper lays out an institutional framework for accomplishing this objective. A central argument is that the task of industrial policy is as much about eliciting information from the private sector on significant externalities and their remedies as it is about implementing appropriate policies. The right model for industrial policy is not that of an autonomous government applying Pigovian taxes or subsidies, but of strategic collaboration between the private sector and the government with the aim of uncovering where the most significant obstacles to restructuring lie and what type of interventions are most likely to remove them.
Keywords: Economic Growth
JEL Codes: O10; O20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| industrial policy (O25) | economic growth (O49) |
| industrial policy (O25) | addressing market failures (D47) |
| government intervention (O25) | necessary investments and risk-taking behaviors (G31) |
| strategic collaboration (O36) | identifying and addressing obstacles (I24) |
| market failures (D52) | hinder ability of entrepreneurs to diversify and innovate (O31) |
| effective industrial policy (O25) | significant social gains (O35) |
| self-discovery among entrepreneurs (L26) | identify profitable new activities (M13) |