Stages of industrial development and appropriate industrial policy

Abstract

Recent global economics developments called industrial policies back to the agenda. What kind of industrial policy is right for what kind of country at what industrialization stage? We argue that a one-size-fits-all type, industrialization-stage-proof industrial policy is ineffective and examine appropriate industrial policies in conjunction with the stages of industrialization. We develop an index to rank and classify countries into stages of industrialization. We show that (i) overall, there is a positive relationship between the level of industrialization and per capita income, (ii) within-stage relationship is positive but less powerful in relatively less advanced stages, i.e., industrial policy is effective in raising incomes and productivity in these stages, (iii) for the most advanced countries the relationship turns to negative, i.e., the effectiveness of traditional and focused industrial policy vanishes and science and innovation policies are more appropriate. We also underline the link between education policy and industrial policy.