Back in Business: Industrial Policy for Emerging Economies in the New Globalization

23 Pages Posted: 8 Jun 2018

See all articles by Erik Berglöf

Erik Berglöf

Institute of Global Affairs, London School of Economics and Political Science

Vince Cable

London School of Economics

Date Written: February 2018

Abstract

We explore the potential roles of industrial policy in the transition from middle-income to high-income status, and the actual experience of industrial policy in emerging economies. Guided by the conceptual framework of the neo-Schumpeterian approach, we look at industrial policy in the context of structural transformation, i.e., in transforming economic structures as well as the institutions supporting these structures. Today’s emerging economies face a dual structural transformation challenge: (i) to move closer to the current world technology frontier (traditional catch-up), and (ii) to adjust to technological change in advanced economies and increasingly binding environmental and social constraints. The feasible set of industrial policy is constrained by state capacity. The paradox of industrial policy is that it is most straightforward when state capacity is the most constrained. We suggest that emerging economies still should explore what we denote as sector-based horizontal policies addressing market and state failures in individual industries.

Keywords: emerging economies, industrial policy, innovation, state capacity, structural transformation

JEL Classification: F43, L52, O31, O38, O43, O47

Suggested Citation

Berglöf, Erik and Cable, Vince, Back in Business: Industrial Policy for Emerging Economies in the New Globalization (February 2018). ADBI Working Paper 537, Available at SSRN: https://ssrn.com/abstract=3188500 or http://dx.doi.org/10.2139/ssrn.3188500

Erik Berglöf (Contact Author)

Institute of Global Affairs, London School of Economics and Political Science ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Vince Cable

London School of Economics ( email )

United Kingdom

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