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The World Bank Research Observer Advance Access originally published online on July 22, 2006
The World Bank Research Observer 2006 21(2):267-297; doi:10.1093/wbro/lkl001
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© The Author 2006. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org.

Is There a Case for Industrial Policy? A Critical Survey

Howard Pack and Kamal Saggi

Howard Pack is a professor of business and public policy, economics, and management in the Wharton School at the University of Pennsylvania, Philadelphia; his e-mail address is packh{at}wharton.upenn.edu. Kamal Saggi is a professor of economics in the Department of Economics at the Southern Methodist University; his e-mail address is ksaggi{at}smu.edu.

What 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? This article addresses these questions through a critical survey of the analytical literature on industrial policy. It also reviews some recent industry successes and argues that public interventions have played only a limited role. Moreover, the recent ascendance and dominance of international production networks in the sectors in which developing countries once 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.


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