Strategic Industrial Policy Research Articles

Union Behavior, Industry Rents, and Optimal Policies

This paper examines the welfare gains from strategic trade and industrial policy in the U.S. steel industry, focusing particularly on the potential gains from capturing labor rents. I take into account product market distortions such as price-setting firms, factor market distortions in the form of union-created labor rents, and the presence of fixed capital and underutilized capacity in U.S. steel production. ; The existence of underutilized capacity means that firms respond to protection by reducing the share of labor in production, eliminating the rents targeted by the policy and thus reducing the potential gains. At the same time, the union takes advantage of protection to skim off rents, further reducing the effectiveness of the optimal policy. Taking into account these endogenous responses substantially reduces the welfare gains from optimal policies. And simply reducing domestic labor market distortions results in a welfare gain nearly as large as that from optimal policies. This suggests that the focus on labor rents as the subject of U.S. trade and industrial policy is overstated, at least in manufacturing industries such as integrated steel.

Rent Shifting and Rent Sharing: A Re-Examination of the Strategic Industrial Policy Problem

This paper reexamines the market structure problem in the strategic trade policy literature. It is shown that rent sharing between the home union and the home firms raises total home industry rents regardless of whether the international duopoly is Cournot or Bertrand. Furthermore, home welfare also rises with cooperation if the international industry consists of more than two firms, if the industry is faced with entry, and if there is domestic consumption. This paper shows that rent sharing can be a robust strategic industrial policy and can be interpreted as a solution to the market structure dilemma.

The failure of strategic industrial policies due to manipulation by firms

The home government announces an export subsidy before a home firm and a foreign rival compete in a third market. Anticipating the subsidy, either home or foreign firms may increase their output-cost-savings investments. Anticipatory investments in either country may cause domestic welfare to fall below its free market level. Similarly, if both home and foreign governments use strategic industrial policies, welfare may fall in one or both countries.

Strategic industrial policies in a global industrial system

Abstract What is the most appropriate framework, the most appropriate economic model, for designing an effective industrial policy? This article examines the evolution of both general policy opinion and economic literature related to this issue. After a brief summary of the tools needed in economics for an appropriate framework of analysis, the first section articulates the latest positions in policy opinion along the spectrum from state interventionism to anti‐regulationism. The section then presents the arguments behind the new trade theory and those of complementary theorizations to help us recognize the importance of the new trade theory as a suitable framework in favour of state intervention. The article states, however, that this is not sufficient, and the second section outlines the merits of an emerging systemic approach. It provides insights beyond the scope of the new trade theory which could serve as a foundation for the design of strategic industrial policies in a global industrial system.

The Dynamics of Export-Oriented Growth in a Second Generation Nic: Perspectives on the Turkish Case, 1980-1990

Can a new generation of countries emerge and establish themselves as major exporters of manufactures on the basis neo-liberal economic policies and thus replicate the outstanding performance of the first generation Asian and Latin American newly industrialized countries (NICs)? The article seeks to answer this question on the basis of a case-study, Turkey, a country which has managed to undertake a significant switch from import-substitution to export-orientation under an essentially neo-liberal reform package. The central argument may be summarized as follows. Neo-liberal reforms, when combined with a number of favourable “external conditions”, are quite successful in terms of engineering a shift of the existing productive capacity from import-substitution towards exports. Yet, such policies, on the whole, are less successful in terms of generating the level of investment necessary to sustain rapid growth in manufactured exports over time and also to achieve a steady process of export deepening. A sustained breakthrough in manufactured export growth cannot be realized by trade liberalization and exchange rate policy alone. Macroeconomic management and strategic industrial policy are likely to play a key role, particularly following the initial and comparatively easy phase of export-substitution.

Union Behavior, Industry Rents, and Optimal Policies

This paper examines the welfare gains from strategic trade and industrial policy in the U.S. steel industry, focusing particularly on the potential gains from capturing labor rents. I take into account product market distortions such as price-setting firms, factor market distortions in the form of union-created labor rents, and the presence of fixed capital and underutilized capacity in U.S. steel production.The existence of underutilized capacity means that firms respond to protection by reducing the share of labor in production, eliminating the rents targeted by the policy and thus reducing the potential gains. At the same time, the union takes advantage of protection to "skim off" rents, further reducing the effectiveness of the optimal policy. Taking into account these endogenous responses substantially reduces the welfare gains from optimal policies. And simply reducing domestic labor market distortions results in a welfare gain nearly as large as that from optimal policies. This suggests that the focus on labor rents as the subject of U.S. trade and industrial policy is overstated, at least in manufacturing industries such as integrated steel.

Human Resource Management and International Trade

This article reviews recent developments in international trade theory that relate to issues of human resource management and industrial relations Some trade models with imperfectly competitive goods markets and thir liks to strategic trade and industrial policy and described. These models, results are shown to be sensitive to the incorporation of labor market imperfections. Applications of trade theory to international labor migration and human capital acquisition are also included.

Strategic planning and industrial policy

The poor performance of British industry in international markets is partly due to a lack of sector strategic planning. Whereas the Thatcher government looks to an unfettering of the market mechanism as the key to industrial recovery, in fact this is contrary to the experience of several other capitalist countries. The role of banks and government agencies in Japan, of inter-firm co-operation in Italy, and of various corporatist instruments in France and Germany, suggest ways in which local enterprise boards could assist the re-structuring of manufacturing industry in Britain.