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Industrial Policy

Friday Roundup: Economically shrinking G7, Africa's youth, Chinese labor, Sandy's costs, and Industrial Policy

LTD Editors's picture

This week a new forecast and analysis from the OECD highlights how, by around 2025, China's and india's combined GDP will likely exceed that of all the current Group of 7 rich economies. Read it here.

Mo Ibrahim, entrepreneur and billionaire, talks in a video clip about how the promise and risks inherent Africa's demographic bulge require bringing youth to the table when discussing not just jobs, training and places in top schools, but they should also be in on governance discussions.

The Alchemy of Achievement: ‘Go for the Gold’ by Planning for Competitiveness

Christopher Colford's picture

Strategic planning brought the UK Olympic success. Can it also pay economic dividends? (Credit: London Annie, Flickr Creative Commons)Success doesn’t just happen automatically – not in the economy, and not in any competitive arena of life. But by focusing your resources realistically in the areas of your greatest strength, you can maximize your chances of coming out on top. Perhaps in some long-vanished world of effortless monopolies and protected markets, passivity might once have been enough – but in a world of relentless global competition, a lazy laissez-faire abdication cannot deliver optimal results.

That lesson has come through clearly amid these elegiac end-of-summer days, as the world continues to bask in the Olympic afterglow of the Summer Games in London. The games lifted the spirits of sports-watchers worldwide – and the postgame analysis of just how the host country, Great Britain, ran up its highest medal count in 104 years has provoked some intriguing ideas about creating an “Olympic effect” for economic development.

India’s IT industry and industrial policy

Justin Yifu Lin's picture

The role of the Indian government in helping foster the success of India’s IT industry is a point I disagree with Kalpana Kochhar about. Kalpana, World Bank regional Chief Economist for South Asia, posted a comment disagreeing with my views on the subject on ‘Africa Can Reduce Poverty’. Following is my counterpoint to her:

    Development Economists Can Learn from a Pop Musician

    Justin Yifu Lin's picture

    Image Courtesy: http://blog.zap2it.com/frominsidethebox/2012/02/grammys-2012-paul-mccartneys-my-valentine-performance.htmlIn his hit My Valentine, former Beatle Sir Paul McCartney sings about a Moroccan vacation where foul weather meant he and his love could not enjoy the vacation and planned sightseeing they had envisioned. Sir Paul was frustrated, until his love said the weather mattered little and they should change their mindset and make the most of it. That advice inspired the opening lyrics of his tune -- What if it rained?/ We didn't care/ She said that someday soon/ The sun was gonna shine/ And she was right/ This love of mine,/ My Valentine -- and taught him a valuable lesson: Complaining about the missing ingredients necessary to achieve any goal is a waste. It is far better to focus on what is already available and make the most of things.

    Jumping monkeys, George Clooney, and NSE

    Merrell Tuck-Primdahl's picture

    Source: 'Comment: The New Structural Economics' PPT by Ricardo HausmannIt’s not every day that jumping monkeys and George Clooney are discussed in the context of a framework for development economics. But that’s exactly what happened on March 6 when Justin Yifu Lin presented his book, ‘New Structural Economics: A framework for Rethinking Development Policy’, with Regional Chief Economist for Africa Shanta Devarajan moderating and Harvard Professor Ricardo Hausmann providing a lively counterpoint as discussant. Justin made an impassioned case for how industrial structure is endogenous to endowment structure, arguing that following comparative advantage and involving the state as a facilitator can be the ticket to income growth and poverty reduction. Hausmann argued that comparative advantage is not determined by an economy’s broad endowment of factors, but by what you know how to do. He also argued that imitation (for example, if George Clooney wears a brand of cologne, other men would wear it too) and moving preferentially towards nearby goods (the jumping monkey analogy) are powerful drivers of innovation and success in industry. Watch the video to get the full narrative or download the Powerpoints here.

    What Industrial Policy?

    Keijiro Otsuka's picture

    Recently, economists began proposing the strategy for industrial development in low-income countries.  But there are few explicit recommendations as to what role governments should play in fostering industrialization.  Related question is whether we can draw useful lessons from successful experience of industrial development in East Asia for other regions, such as sub-Saharan Africa (SSA).

    The paper entitled “A Cluster-Based Industrial Development Policy for Low-Income Countries” (Policy Research Working Paper 5703) proposes an industrial policy consisting of four pillars of recommendations based on roughly 20 case studies of industrial clusters in Asia and sub-Saharan Africa.

    Structural Change, growth and jobs

    Merrell Tuck-Primdahl's picture

    Structural transformation is a key determinant of productivity growth and explains two-thirds of the difference between superior East Asian growth and more muted Latin American growth in the past two decades.

    Given the multi-speed paths that regions and countries take as they transform, with some succeeding spectacularly and some struggling to compete, it may be time to consider new industrial and labor policies to ensure that a huge swath of the lower middle class in the developing world doesn’t get left behind in the race to compete in today’s unforgiving global marketplace.

    Choosing countries as models for industrial growth

    Justin Yifu Lin's picture

    Train station. India. Photo: © Curt Carnemark / World Bank

    Shanta’s thoughtful comments on our Growth Identification and facilitation (GIF) paper are most welcome. The issues of industrialization and structural transformation are at the heart of economic development. Following comments already made by my co-author Célestin Monga on this blog, let me offer a few thoughts to this exchange.

    First, the GIF approach explains the economic success of a very diverse group of countries: China (with 1.3 billion population), Japan (100 million); Taiwan-China (20 million); Korea (40 million); Singapore (5 million); or Mauritius (400.000). The framework has also been applied in large Western countries such as Germany, France, and United States, and small European countries like Sweden, Norway, Finland, and Ireland. The political systems of those economies are also very different, some are democratic and some are authoritarian.

    Growth identification and facilitation – let the debate begin

    Célestin Monga's picture
     photo: istockphoto.com

    In the famous movie Forrest Gump (1994), which is the story of an innocent man who represents how the world should be, the main character Tom Hanks remembers: “My Mama always said, ‘Life is like a box of chocolates; you never know what you’re gonna get.’” Development economists working on industrial policy should always keep in mind that motherly wisdom and maintain humility in their random quest for the recipe for economic growth.

    In a recent paper on ‘Growth Identification and facilitation: The role of the state in the dynamics of structural change,’ Justin Yifu Lin and I have tried to suggest a rational way of looking at the trial-and-error process that successful economic development always involves. In a new post on his excellent blog ‘Africa Can,’ my colleague Shanta Devarajan welcomes our work but asserts that we gloss over the politics that underlie efforts by governments to guide certain industries toward success.

    Creating competitive markets

    Ryan Hahn's picture

    It is a matter of debate whether governments should play an active role in stimulating industrial upgrading. But it strikes me as highly unlikely that an activist role for government has much benefit for products low on the value chain. A new policy note from ODI on four product markets in five developing countries seems to bear this out.


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