Industrial policy: Best practices for emerging economies

Abstract

Industrial policy, namely, the set of policies that aim to influence the evolution of particular industrial sectors with a view to raising the overall productivity of the economy, has been far too long unfairly denounced among mainstream economists. Industrial policy is still considered to be an anti-thesis of private sector development - namely, the perspective that government involvement in business, beyond the provision of infrastructure and contract enforcement, hampers private sector development. However, this is a very misleading view. Industrial policy, especially (although not exclusively) in the context of emerging economies, is based on the recognitions that reliance on market mechanism and private sector initiative is insufficient in promoting economic development. The ultimate goal of industrial policy is to build an economy with higher productive capabilities and in a capitalist economy this cannot be done without developing the private sector.