Efficiency, Finance, and Varieties of Industrial Policy: guiding resources, learning and technology for sustained growth

517 Pages·2017·1.57 MB·English

by  Akbar Noman and Joseph E. Stiglitz

EFFICIENCY, FINANCE, AND VARIETIES
OF INDUSTRIAL POLICY
Initiative for Policy Dialogue at Columbia:
Challenges in Development and Globalization
INITIATIVE FOR POLICY DIALOGUE AT COLUMBIA:
CHALLENGES IN DEVELOPMENT
AND GLOBALIZATION
JOSÉ ANTONIO OCAMPO AND JOSEPH E. STIGLITZ,
SERIES EDITORS
Escaping the Resource Curse, Macartan Humphreys,
Jeffrey D. Sachs, and Joseph E. Stiglitz, eds.
The Right to Know, Ann Florini, ed.
Privatization: Successes and Failures, Gérard Roland, ed.
Growth and Policy in Developing Countries: A Structuralist Approach,
José Antonio Ocampo, Codrina Rada, and Lance Taylor
Taxation in Developing Countries, Roger Gordon, ed.
Reforming the International Financial System for Development,
Jomo Kwame Sundaram, ed.
Development Cooperation in Times of Crisis, José Antonio Ocampo
and José Antonio Alonso
New Perspectives on International Migration and Development,
Jeronimo Cortina and Enrique Ochoa-Reza, eds.
Industrial Policy and Economic Transformation in Africa,
Akbar Noman and Joseph E. Stiglitz, eds.
Macroeconomics and Development: Roberto Frenkel
and the Economics of Latin America, Mario Damill,
Martín Rapetti and Guillermo Rozenwurcell, eds.
Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises,
Guzman, Martin, José Antonio Ocampo,
and Joseph E. Stiglitz, eds.
EFFICIENCY, FINANCE,
AND VARIETIES OF
INDUSTRIAL POLICY
GUIDING RESOURCES, LEARNING,
AND TECHNOLOGY FOR
SUSTAINED GROWTH
Akbar Noman and
Joseph E. Stiglitz, Editors
Columbia University Press
New York
Columbia University Press
Publishers Since 1893
New York Chichester, West Sussex
cup.columbia.edu
Copyright © 2017 Columbia University Press
All rights reserved
Library of Congress Cataloging-in-Publication Data
Names: Noman, Akbar, editor. | Stiglitz, Joseph E., editor.
Title: Efficiency, finance, and varieties of industrial policy : guiding
resources, learning and technology for sustained growth / Akbar Noman
and Joseph Stiglitz, eds.
Description: New York : Columbia University Press, [2017] | Includes index.
Identifiers: LCCN 2016033888 | ISBN 9780231180504 (cloth : alk. paper) |
ISBN 9780231542777 (E-book)
Subjects: LCSH: Sustainable development. | Economic development. |
Industrial policy. | Development banks—Finance.
Classification: LCC HC79.E5 E3324 2016 | DDC 338.9/27—dc23
LC record available at https://lccn.loc.gov/2016033888
Columbia University Press books are printed on permanent
and durable acid-free paper.
Printed in the United States of America
Cover image: ©zhaojiankang/iStockPhoto
INITIATIVE FOR POLICY DIALOGUE AT COLUMBIA:
CHALLENGES IN DEVELOPMENT
AND GLOBALIZATION
JOSÉ ANTONIO OCAMPO AND JOSEPH E. STIGLITZ,
SERIES EDITORS
The Initiative for Policy Dialogue (IPD) at Columbia University brings
together academics, policymakers, and practitioners from developed and
developing countries to address the most pressing issues in economic pol-
icy today. IPD is an important part of Columbia’s broad program on devel-
opment and globalization. The Initiative for Policy Dialogue at Columbia:
Challenges in Development and Globalization book series presents the latest
academic thinking on a wide range of development topics and lays out
alternative policy options and trade-offs. Written in a language accessible
to policymakers and students alike, this series is unique in that it both
shapes the academic research agenda and furthers the economic policy
debate, facilitating a more democratic discussion of development policies.
Many of the most fundamental and frequent controversies in economics
revolve around the issues of the salience and significance of market failures
and the role of the state in overcoming them. They arise in a particularly
acute form in the literature on industrial policies. Broadly understood, “in-
dustrial policy” refers to public policy measures aimed at influencing the
allocation and accumulation of resources, and the choice of technologies.
A particularly important set of industrial policies, at the center of many
of the papers in this volume, comprises those targeted at activities that
promote learning and technological upgrading. They are sometimes more
accurately labeled as “learning, industrial and technology” (LIT) policies.
There has been a resurgence of interest in industrial policies in recent years,
and such policies have even come to be advocated by the World Bank. This
revival prompted IPD and Japan International Cooperation Agency (JICA)
to establish a joint task force on industrial policies motivated in part by the
neglect of research into industrial policies in the long period the subject was
neglected. Issues requiring further exploration included those pertaining to
development finance and the links between the recent literature on industrial
policies and that on growth and structural transformations. So did new em-
pirical work on experiences with industrial policies; and new insights into the
debate on static vs. dynamic efficiency and on mitigation of risks.
This volume hopes to inform the policy choices facing countries both in
the advanced world and in emerging markets and less developed countries,
and to help them design institutions and policies appropriate for them.
For more information about IPD and its upcoming books, visit www.
policydialogue.org.
CONTENTS
1. Learning, Industrial, and Technology Policies: An Overview 1
Akbar Noman and Joseph E. Stiglitz
PART I Theoretical and Conceptual Foundations 21
2. Industrial Policies in Learning Economies 23
Mario Cimoli and Giovanni Dosi
3. Dynamic Efficiency: Structural Dynamics and
Economic Growth in Developing Countries 65
José Antonio Ocampo
PART II Development Finance 103
4. Uncertainty, Investment, and Financing:
The Strategic Role of National Development Banks 105
João Carlos Ferraz
5. The Roles of Development Banks: How They Can
Promote Investment in Europe and Globally 131
Stephany Griffith-Jones and Giovanni Cozzi
6. Inside the Black Box of Japan’s Institution for
Industrial Policy: An Institutional Analysis of the
Development Bank, Private Sector, and Labor 156
Go Shimada
viii CONTENTS
7. Development Banks and Industrial Finance:
The Indian Experience and Its Lessons 191
Deepak Nayyar
PART III Practice and Proposals 223
8. Industrial Policy Revisited:
A New Structural Economics Perspective 225
Justin Yifu Lin
9. Varieties of Industrial Policy: Models, Packages,
and Transformation Cycles 245
Antonio Andreoni
10. Industrial Strategies: Toward a Learning Society
for Quality Growth 306
Akio Hosono
11. Could Technology Make Natural Resources a Platform
for Industrialization? Identifying a New Opportunity
for Latin America (and Other Resource-Rich Countries) 353
Carlota Perez
12. Manufacturing Development: The Role of
Comparative Advantage, Productivity Growth,
and Country-Specific Conditions 390
Nobuya Haraguchi
13. Does Manufacturing Colocate with Intermediate Services?
Analyzing the World Input-Output Database 447
Ming Leong Kuan
Acknowledgments 483
Contributors 485
Index 493
EFFICIENCY, FINANCE, AND VARIETIES
OF INDUSTRIAL POLICY
CHAPTER 1
Learning, Industrial, and Technology Policies
AN OVERVIEW
Akbar Noman and Joseph E. Stiglitz
Many of the most fundamental and frequent controversies in economics
revolve around two related sets of issues: the salience and significance
of market failures and the role of the state in overcoming them. They
arise in a particularly acute form in the literature on industrial policies.
Broadly understood, industrial policy refers to public policy measures
aimed at influencing the allocation and accumulation of resources, and
the choice of technologies. A particularly important set of industrial poli-
cies, at the center of many of the chapters in this volume, comprises those
targeted at activities that promote learning and technological upgrading.
They are sometimes more accurately labeled as learning, industrial and
technology (LIT) policies. We use the term to cover both deliberate and
self-described industrial policies as well as policies that have a similar
effect though they are not labeled as “industrial policies” (this is particu-
larly well illustrated by Antonio Andreoni’s contribution, chapter 9).
Industrial policies became virtually ousted from the set of policy pre-
scriptions proffered by economists—even if they were often resorted to
in practice—in the heyday of neoliberalism, with the Washington con-
sensus policies heavily biased in favor of largely unfettered markets.1
There has been a resurgence of interest in industrial policies in recent
years, and such policies have even come to be advocated by the World
Bank.2 This revival prompted the Initiative for Policy Dialogue (IPD)
and Japan International Cooperation Agency (JICA) to establish a joint
task force on industrial policies. The task force’s work was motivated in
part by the neglect of research into industrial policies in the long period
the subject was in exile from academic research and policy analysis, and
especially from that of multilateral organizations. Issues requiring further
2 LEARNING, INDUSTRIAL, AND TECHNOLOGY POLICIES
exploration included those pertaining to development finance and the
links between the recent literature on industrial policies and that on
growth and structural transformations. There has been, moreover, new
empirical work on different experiences with industrial policies and new
insights into the debate on static vs. dynamic efficiency and on mitigation
of risks.
The historical experience of advanced economies at or near the frontier
of technology, attests to the vital role that industrial policies played in
sustained economic growth and transformation.3 This provides compel-
ling testimony to the critical role of governments in fostering sustained
economic progress. Moreover, there are good theoretical reasons for the
type of public policy interventions that constitute what we have called
LIT and industrial policies. These are elaborated in chapter 2 by Mario
Cimoli and Giovanni Dosi, and in chapter 3 by José Antonio Ocampo.
Before we turn to these and the other chapters that comprise this volume,
it would be apposite to comment on one objection to industrial policies:
What may be good in theory may be vitiated by the risks of poor design
and implementation. The answer to this objection is, first, that while
industrial policies are not sufficient by themselves for success in economic
development, both historical experience and theory indicate that they are
virtually necessary. Second, yes there are risks stemming from institutional
imperfections and political economy “failures,” but such problems are by
no means confined to industrial policy as demonstrated, for example, by
many failed programs of macroeconomic stabilization or of liberalization
and privatization. The challenge for public policy is to get the risk–reward
ratio right. That industrial policy has the potential to provide plentiful
rewards and that there are ways to obtain them and mitigate risks of fail-
ure are amongst the central contentions of this collection of essays.
The rest of the volume comprises three parts. Part I elaborates on the
conceptual and theoretical foundations of LIT or industrial policies.
Part II focuses on an aspect that has been relatively neglected in the recent
literature, even as its importance has been widely recognized: develop-
ment finance, in particular development banks. The primary focus of
part III is on experiences and experiments with industrial policies, their
lessons, and proposals about their design and implementation. In this
overview, we pay particular attention to part I. This quick sketch cannot,
of course, do justice to the chapters and is aimed more at whetting the
appetite and drawing some salient links between the various contribu-
tions than at providing a summary.