Rodrik, Dani2017-08-282017-08-282008https://hdl.handle.net/10986/28009The theoretical case for industrial policy is a strong one. The market failures that industrial policies target in markets for credit, labor, products, and knowledge have long been at the core of what development economists study. The conventional case against industrial policy rests on practical difficulties with its implementation. Even though the issues could in principle be settled by empirical evidence, the evidence to date remains uninformative. Moreover, the conceptual difficulties involved in statistical inference in this area are so great that it is hard to see how statistical evidence could ever yield a convincing verdict. A review of industrial policy in three non-Asian settings El Salvador, Uruguay, and South Africa highlights the extensive amount of industrial policy that is already being carried out and frames the need for industrial policy in the specific circumstances of individual countries. The traditional informational and bureaucratic constraints on the exercise of industrial policy are not givens; they can be molded and rendered less binding through appropriate institutional design. Three key design attributes that industrial policy must possess are embeddedness, carrots-and-sticks, and accountability.en-USCC BY 3.0 IGOACCOUNTABILITYACCOUNTINGADVERSE EFFECTSAGENCY PROBLEMSAGRICULTUREALLOCATIONALTERNATIVE USEANTI-CORRUPTIONASSETSASYMMETRIC INFORMATIONBANK CREDITBANK LENDINGBANKSBARGAININGBENCHMARKINGBENCHMARKSBENEFICIARIESBENEFICIARYBIDBUSINESS CYCLEBUSINESSMENCENTRAL BANKCENTRAL BANK INDEPENDENCECLIMATECLIMATE CHANGECOLLAPSECOLLATERALCOLLECTIVE ACTIONCOMMERCIAL BANKSCOMPETITIVENESSCONFIDENCECONSUMER PROTECTIONCOORDINATION FAILURESCORRUPTIONCOST-BENEFITCOST-BENEFIT ANALYSISCREDIT CONSTRAINTCREDIT CONSTRAINTSCREDIT MARKETCREDIT PROGRAMCREDIT SUBSIDIESCREDITORSCURRENCYCURRENCY DEPRECIATIONDEBTDEMOCRACYDEREGULATIONDEVELOPING COUNTRIESDEVELOPING COUNTRYDEVELOPMENT BANKDEVELOPMENT ECONOMICSDEVELOPMENT STRATEGYDIMINISHING RETURNSDIRECTED CREDITDIVERSIFIED PORTFOLIODOMESTIC PRODUCTIONDYNAMICS OF GROWTHECONOMETRICSECONOMIC ACTIVITYECONOMIC DEVELOPMENTECONOMIC DIVERSIFICATIONECONOMIC GROWTHECONOMIC HISTORYECONOMIC OUTCOMESECONOMIC PERFORMANCEECONOMIES OF SCALEEQUIPMENTEXCHANGE RATEEXPENDITURESEXPORT PERFORMANCEEXPORTSEXTERNAL FINANCEEXTERNALITIESFACE VALUEFEASIBILITYFEASIBILITY STUDIESFINANCIAL LOSSESFINANCIAL MARKETFINANCIAL MARKETSFIRM PERFORMANCEFISCAL POLICIESFISCAL POLICYFOREIGN DIRECT INVESTMENTFOREIGN INVESTMENTFOREIGN INVESTORSGDPGDP PER CAPITAGLOBALIZATIONGOOD GOVERNANCEGOVERNMENT INTERVENTIONGOVERNMENT POLICYGOVERNMENT SUPPORTGROWTH RATEGROWTH THEORYHOLDINGHOST COUNTRIESHUMAN CAPITALIMPORT SUBSTITUTIONIMPORTSINCOMEINCOME LEVELSINFANT INDUSTRY ARGUMENTINFLATIONINFORMATIONAL ASYMMETRIESINFORMATIONAL ASYMMETRYINITIATIVEINNOVATIONINNOVATIONSINSTRUMENTINSURANCEINTELLECTUAL PROPERTYINTEREST RATESINTERNATIONAL BANKINTERNATIONAL DEVELOPMENTINVESTINGINVESTMENT BANKINVESTMENT CLIMATEINVESTMENT FINANCEINVESTMENT OPPORTUNITIESJOBSLABOR MARKETLABOR TURNOVERLAWSLOW UNEMPLOYMENTMACROECONOMIC INSTABILITYMACROECONOMIC POLICIESMACROECONOMIC STABILIZATIONMACROECONOMICSMARGINAL COSTSMARKET ANALYSTSMARKET DISCIPLINEMARKET ENVIRONMENTSMARKET FAILUREMARKET FAILURESMARKET SHORTCOMINGSMICROFINANCEMINISTERMONETARY POLICYMULTINATIONALMULTINATIONALSNATIONAL OUTPUTOPPORTUNITY COSTOUTPUTSPENSIONPENSION SYSTEMSPENSIONSPERFORMANCE STANDARDSPOLICY MAKERSPOLICY RESPONSEPOLITICAL ECONOMYPOLITICIANPOLITICIANSPORTFOLIOPOSITIVE EFFECTSPOSITIVE EXTERNALITIESPOTENTIAL INVESTMENTPREFERENTIALPRINCIPAL-AGENTPRIVATE INVESTMENTPRIVATE LENDERSPRIVATIZATIONPROCUREMENTSPRODUCTION COSTSPRODUCTIVITYPRODUCTIVITY GROWTHPROPERTY RIGHTSPUBLIC FINANCESPUBLIC INFORMATIONREAL EXCHANGE RATEREAL EXCHANGE RATESREAL WAGESRELATIVE PRICEREMEDIESREMEDYREMITTANCESRENEGOTIATIONRENTSRESOURCE ALLOCATIONRETURNRETURNSRISK CAPITALRISK MARKETSSAFETYSAFETY NETSSOCIAL COHESIONSOURCE OF CREDITSTOCKSSTRUCTURAL CHANGESUPPLIERSTAXTAX CODETAX CREDITSTAX INCENTIVESTAX REGIMETAX TREATMENTTOTAL FACTOR PRODUCTIVITYTRADE BARRIERSTRADE LIBERALIZATIONTRADE POLICIESTRADE PROTECTIONTRANSPARENCYTURNOVERUNDERVALUATIONUNEMPLOYEDUNEMPLOYMENTUNSKILLED LABORVALUE ADDEDWAGESWHITE ELEPHANTSWITHDRAWALWORLD TRADE ORGANIZATIONWTOWorking PaperWorld Bank10.1596/28009