Industrial Policy in an Imperfect World

Item Type Journal paper
Abstract We study industrial policy and its effectiveness in a model with both market and government failures. We introduce a public agency responsible for industrial policy into the model of Hausmann and Rodrik [Hausmann, R., Rodrik, D., 2003. Development as Self-Discovery. Journal of Development Economics 72, 603-633], and we assume that this agency has limited information and political motives. In an extension, we further allow entrepreneurs to engage in rent seeking activities. We find that industrial policies are ineffective if the public agency is poorly informed, but not necessarily so if it is highly politically motivated. Given a politically motivated public agency, industrial policies are effective if and only if the institutional setting ensures that such policies are modest, e.g. by restricting the agency's budget. Moreover, our model helps us to understand why the same industrial policies that have failed elsewhere have been relatively successful in South Korea and Taiwan.
Authors Hodler, Roland
Journal or Publication Title Journal of Development Economics
Language English
Keywords Industrial policy, Market failures; Government failures; Rent seeking; Political economics
Subjects economics
HSG Classification contribution to scientific community
Refereed Yes
Date 1 September 2009
Publisher Elsevier
Place of Publication Amsterdam
Volume 90
Number 1
Page Range 85-93
Number of Pages 9
ISSN 0304-3878
ISSN-Digital 1872-6089
Publisher DOI
Depositing User Prof. Dr. Roland Hodler
Date Deposited 23 Sep 2014 20:15
Last Modified 28 Mar 2023 00:23


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Hodler, Roland (2009) Industrial Policy in an Imperfect World. Journal of Development Economics, 90 (1). 85-93. ISSN 0304-3878

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