Promoting industries and creating jobs, if successful, would boost economic development and thereby support state building.
While politicians and bureaucrats are
aware of how important industrial development is, they are unaware of how to facilitate it.
In the international development cooperation community in developed countries
and international organizations, the commonly accepted view until recently was that industrial policy would not work because market failures prevent industrial development from occurring and, hence, it would be too difficult for the developing countries, especially current low-income countries, to address the failures without causing serious government failures. Thus, policymakers in developing countries could not receive encouragement or useful suggestions for industrial development from this community.
More recently, there has been a sea change. Major publications by international organizations, such as the World Bank’s World Development Report 2013 and the African Development Bank and the OECD Development Centre’s African Economic Outlook 2012, emphasize the importance of creating jobs and generating incomes through improving productivity in the industrial sector.
Also, symposiums and
conferences on the same issues abound. This change is encouraging for the people of developing countries longing for industrial development. This, however, is just the beginning of the accumulation of knowledge necessary for providing a scientific foundation for the prescription and implementation of a strategy for industrial development.
Considerable further research on industrial policy is clearly warranted.
This paper reports a case study of a successful industrial policy which was proclaimed and enacted by the government of Bangladesh three decades ago. 2
reason why we focus on a successful case and not failures is that there are already scores of excellent studies on failed industrial policies, such as Balassa (1971), Bhagwati (1978), and Krueger (1978), just to name a few.1
These studies have made it
clear how government interventions that are intended to protect and promote industries can aggravate the dysfunction of markets, create hotbeds for corruption, and widen the gap between the rich and the poor.
A major message of economics is that government interventions enhance economic development only when they address market failure problems.
market failures do not necessarily call for government intervention as they may be mitigated by grassroots non-market institutions based on the community mechanism or other mechanisms, as Greif (2006), Williamson (1985), Hayami and Godo (2005) and other prominent economists argue. Still, grassroots efforts are likely to solve market failure problems only partially because of the transaction costs and leave room for government interventions. From studies of failed industrial policies, it is impossible to learn whether government interventions are doomed to fail or whether they can succeed in correcting market failures if designed and implemented appropriately.
successful cases of industrial development are expected to illustrate how market failures are mitigated without causing serious government failures and what the effective division of labor among markets, non-market institutions, and the government is. Successful cases, however, are much fewer.
Although Baer (1972) and Chang (2003)
among others argue that almost all of today’s developed countries used protection and promotion policies to develop their industries when they were in their developing stages, such experiences in the West in the remote past may be difficult to apply to today’s developing countries.
More useful references would be the more recent experiences in 3
high-performing Asian countries.
This paper deals with the successful development of the pharmaceutical industry in Bangladesh and the...
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