This article will focus on international industrial development strategies. Industrial development strategies, the foundation of national policies and economic policies world wide, help strengthen the economies of developing countries and economies in transition. This article will provide an overview and analysis of the relationship between industrial development strategies, economic globalization, and emerging markets as well as a brief discussion of the international support for industrial development strategies. Issues related to the relationship between industrial development strategy and technological development will be described.
Keywords Developing Countries; Economic Globalization; Economic Policy; Emerging Markets; Industrial Development Strategy; National policy
Economic development policies are created and implemented to strengthen national economies. One of the most important types of economic development policy used by national governments throughout the world is the industrial development policy or strategy. Industrial development strategy is developed and implemented by national governments to make their nation more productive and competitive in world markets. Industrial development strategy encompasses the attempt by national government to establish a cohesive, uniform set of policies crafted to enhance overall economic performance (Jenkin, 2007). Industrial development policy refers to a process in which a country’s public and private sectors work together to analyze the economic health of their country and develop new economic activities and solutions (Rodrik, 2004). According to Driscoll and Behrman, there are three main types of industrial development strategies and policies:
- Industrial development strategies that encourage general growth but trust the market and other economic forces to guide its implementation.
- Industrial development strategies that seek to stimulate industrialization by governmental efforts including general tax, fiscal, and monetary policies as well as support for product research and design (R& D).
- Industrial development strategies that promote specific industrial sectors including influencing decision making of companies and government willingness to make investments in research, design, and production (Driscoll & Behrman, 1984).
Government efforts to target particular business sectors and industries and subsidize them through a range of economic instruments (such as directed credit, subsidies, and tax incentives) usually fail to strengthen the national economy due to the limited scope of the endeavor and the dynamic force and speed of change in foreign markets. Successful industrial development policy is usually not targeted at particular industries but rather targeted at business practices in general, the public-private partnerships, and information-channels that facilitate the development of new rapid, efficient, and profitable production practices (Rodrik, 2006).
Industrial development strategy and policy is based on the assumption that the public sector can significantly influence the economy through policies and strategies. Since the advent of modern trade relationships, national governments throughout the world have shaped and protected their national economies through rules and regulations about import, export, and manufacturing. For example, in the late nineteenth century, the Canadian government developed an industrial development strategy that included tariff protections and the construction of the transcontinental railway. Industrial development strategies are always part of a country’s efforts to develop an integrated and strong national economy.
Governments create industrial policy as part of an overall national or regional development strategy. Industrial policy can include a wide range of support measures such as investment incentives, tax-holiday programs, education, training, research support, and support for small and medium-sized enterprises (SME). Common industrial policy focuses on supply-side incentive programs (such as export incentive programs, support for export marketing, rebate provisions, and duty drawbacks for imported inputs, medium-term loan finance, and accelerated depreciation programs) to encourage broad-based manufacturing development (Roberts, 2001).
The following sections, including the foundations of industrial development strategies and economic globalization and industrial development strategies, provide an overview and analysis of the global practice of industrial development strategy. These sections will serve as an introduction to a discussion of international support for industrial development strategies world-wide. Issues related to the relationship between industrial development strategy and technological development will be described.
Foundations of Industrial Development Strategies
The public sector’s efforts at comprehensive industrial policy are increasingly formalized in governments. For example, Canada, since the 1960s, has developed “specialized federal departments or agencies, designed to improve the government’s management of the economy, deal with emerging technologies, or help industry expand in foreign markets (including the Departments of Employment and Immigration, Communications, Regional Economic Expansion, the Ministry of State for Science and Technology and the Export Development Corporation)” (Jenkin, 2007, ¶14). In addition, South Korea, since the 1960s, has formalized its nation’s industrial policy to include the Ministry of Commerce and Industry (MCI), the National Investment Fund (NIF), and the Tax Exemption and Reduction Control Law (Mah, 2007). Industrial strategy and policy has become a ubiquitous feature of nearly all industrialized and developing countries (Economic Structure and Context, 2012).
Despite the increased formalization and specification within individual national governments and countries, industrial development strategy, as a model for economic development, is based on shared approaches, objectives, and assumptions. Industrial policy in industrialized and developing countries is often similar but the stakes can be quite different. Industrial development policies tend to be integrated approaches including diverse tactics including investment, trade, technology, human-resource, and small and medium-sized enterprises (SME) development policies (Kim, 2005). Developing countries use targeted combinations of the following incentives and initiatives to promote economic development (Tower, 1986):
- Trade policy
- Administered prices
- Regulations on the allocation of credit and interest rates
- Government provision and pricing infrastructure
- Investment codes which provide tax benefits in exchange for a certain level of performance
- Labor market intervention
These incentives and initiatives are intended to produce the following benefits:
- Raise employment
- Improve the balance of payments
- Promote investment in particular regions or sectors
- Foster economic growth
- Promote diversification out of agriculture
Rodrik points out the following key assumptions and principles that support and guide the use of industrial development policy in developing countries:
- Rapidly growing countries are those with large manufacturing sectors.
- Growth accelerations are associated with structural changes in the direction of manufacturing.
- Countries that promote exports of more technologically sophisticated goods grow faster.
- Countries with a broad-based manufacturing sector are more likely to take advantage of new opportunities than one that has limited production abilities and resources.
- Manufacturing capabilities are not wholly determined by factor endowments such as existing amounts of labor and natural resources (Rodrik, 2006).
This last principle is one of the most important principles of industrial development strategy. This principle acknowledges that manufacturing capabilities, necessary for economic development, will be influenced by multiple factors including geography, factor endowments, and industrial policy. Well-conceived industrial development policy has the potential to help poor countries overcome the problem of poor natural resources or lack of sufficient labor. For example, the economies’ of China and India became economically strong and competitive in the global market in large part because of their respective abilities to adopt and adapt to high technology production activities rather than their civilian labor advantage. Clearly, factor endowments, policy, and geography all play a role in shaping production capabilities and success. Ultimately, product and production diversification is one of the main controllable variables of economic development. Countries that successfully compete in the global market usually develop industrial strategies that enlarge an economy’s productive capabilities…