The failure of Algeria’s industrialization strategy, 1967–1989: a new structural economics perspective

Abstract

Following the theoretical framework of New Structural Economics, this article attempts to explain why Algeria’s industrialization strategy failed over the period 1967–1989. Based on this approach, this paper shows that the overdevelopment of a big push industrialization strategy in Algeria since independence, which prioritized capital-intensive heavy industry, violates the comparative advantage principle identified by its factor endowments and gives rise to domestic market distortions and the misallocation of scarce resources. Simultaneously, to scaffold such a development mode, the Algerian government put forth an organic yet deeply distorted system. We conclude that the experience engendered serious weaknesses in Algeria’s industrial structure and planning, and it resulted in an unbalanced economic structure. Thus, Algeria’s industrialization strategy was disappointing in terms of economic outcomes and impact. This failure is often perceived as one of the main origins of the political, social and economic crisis faced by the country for more than a decade. Our findings suggest that the redesign of growth and industrialization strategies should better reflect Algeria’s endowments structure and level of development. Indeed, consistency of a broad-based and industry-based economy with its comparative advantage is one of the best ways to achieve high sustainable economic growth in Algeria.