A presentation this afternoon sponsored by the Development Research Group of the World Bank promises to generate some heat (and hopefully some light as well). Justin Lin, Chief Economist of the World Bank, will be on a panel with Bill Easterly, professor at New York University and author of The White Man's Burden, to discuss Industrial Policy and the Role of the State in Promoting Growth. Although Easterly has been up to a lot of antics on his blog lately (e.g. Supermodel vows to stay naked till USAID funds reach starving children), I expect this discussion will be on the serious side of things.
The presentation will focus on three papers, two of which are authored by Lin. A few weeks ago I heard Lin give a précis of one of these papers, which lays out a New Structuralist approach to development economics. To summarize the paper as briefly as possible: the state has a legitimate role in engaging in industrial policy, but this time around it needs to work with a country's comparative advantage rather than against it.
But my question (as obvious as it may be): how can a government agency know where a country's comparative advantage lies? (I can't help but think of debacles like Malaysia's attempt to build a national car.) Isn't that what a market is for? And even if a government agency manages to identify a country's comparative advantage, what incentives does it have to actually support that sector (rather than serve the interests of corporate lobby groups)?
For those who can't attend the event in person, check back by the end of the week at B-Span, as the event will be videotaped.
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