Trade, Foreign Investment, and Industrial Policy for Developing Countries / Ann Harrison, Andrés Rodríguez-Clare.

Format:

Book

Author/Creator:

Harrison, Ann.

Contributor:

National Bureau of Economic Research.

Rodríguez-Clare, Andrés.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15261.

NBER working paper series no. w15261

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

In this paper we explore the popular but controversial idea that developing countries benefit from abandoning policy neutrality vis-a-vis trade, FDI and resource allocation across industries. Are developing countries justified in imposing tariffs, subsidies, and tax breaks that imply distortions beyond the ones associated with optimal taxes or revenue constraints? We refer to this set of government interventions as "industrial policy". We explore the theoretical foundation for industrial policy and then review the related empirical literature. We follow this with a broader look at the empirical work on the relationship between trade and FDI and growth. In this review, we find little evidence that countries benefit from "hard" interventions that distort prices to deal with Marshallian externalities, learning-by-exporting, and knowledge spillovers from FDI. We discuss an alternative set of "soft" industrial policies that deal directly with the coordination failures that may arise within the sectors or clusters where the country has a comparative advantage.

Notes:

Print version record

August 2009.