Pack, HowardSaggi, Kamal2012-06-222012-06-222006-02https://hdl.handle.net/10986/8782What are the underlying rationales for industrial policy? Does empirical evidence support the use of industrial policy for correcting market failures that plague the process of industrialization? To address these questions, the authors provide a critical survey of the analytical literature on industrial policy. They also review some recent industry successes and argue that only a limited role was played by public interventions. Moreover, the recent ascendance of international industrial networks, which dominate the sectors in which less developed countries have in the past had considerable success, implies a further limitation on the potential role of industrial policies as traditionally understood. Overall, there appears to be little empirical support for an activist government policy even though market failures exist that can, in principle, justify the use of industrial policy.CC BY 3.0 IGOASYMMETRIC INFORMATIONBACKWARD LINKAGECAPITAL MARKETCAPITAL MARKETSCOLLABORATIONCOMPARATIVE ADVANTAGECOMPETITIVE PRICECOMPETITORSCONDITIONSCONSTANT RETURNS TO SCALECONSUMERSDIMINISHING RETURNSDOMESTIC MARKETDYNAMIC ANALYSISDYNAMIC EFFICIENCYECONOMIES OF SCALEEQUILIBRIUMEXPORTSEXTERNALITIESFACTORS OF PRODUCTIONFINANCIAL SECTORFIXED COSTSFOREIGN COMPETITIONFORMAL ANALYSISFREE RIDERFREE RIDER PROBLEMFREE TRADEGROWTH MODELSHUMAN CAPITALIMPERFECT COMPETITIONINCREASING RETURNSINCREASING RETURNS TO SCALEINDUSTRIAL GROWTHINDUSTRIAL POLICIESINDUSTRIAL POLICYINDUSTRIALIZATIONINFANT INDUSTRY ARGUMENTINTERMEDIATE GOODSINTERNATIONAL TRADEINVENTIONSLATIN AMERICANLDCSLEARNINGLICENSINGLOCAL INDUSTRYMARKET ANALYSISMARKET ECONOMYMARKET EQUILIBRIUMMARKET FAILUREMARKET FAILURESMARKET POWERMARKET STUDYMONOPOLISTIC COMPETITIONMONOPOLYNATIONAL INCOMENEW INDUSTRYOLIGOPOLYOPEN ECONOMYOPPORTUNITY COSTPERFECT COMPETITIONPOSITIVE EXTERNALITIESPOSITIVE EXTERNALITYPRICE LEVELSPRODUCERSPRODUCT QUALITYPRODUCTION COSTSPRODUCTION EFFICIENCYPRODUCTION FUNCTIONPRODUCTIVITYPROFIT MARGINPROPERTY RIGHTSRENT SEEKINGSOFTWARE INDUSTRYSUBSTITUTESUPPLY CHAINSSURPLUSTELEPHONE LINESUNDERLYING PROBLEMWELFARE ECONOMICSYIELDSWorld Bank10.1596/1813-9450-3839