On the importance of openness for industrial policy design in developing countries
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- Discussion papers (SAM) 
How should industrial policy be designed in developing countries? Should industrial policy be targeted to a few sectors or be more broad based and therefore more neutral? Our theoretical analysis demonstrates that access to foreign markets is key to answering this question. We show that in a less open economy, industrial policy should be targeted, while in a more open economy, broad based policies are likely to be more effective. One implication of this results is that deregulation is likely to be more successful in a relatively open economy than in a more closed economy. Indeed, deregulation with limited foreign market access may lead to deindustrialization. We provide empirical results that support these predictions.
PublisherNorwegian School of Economics and Business Administration. Department of Economics