Recent research has demonstrated the possibility of welfare-enhancing industrial policy. This paper analyzes the impact of industrial policy on Japan's trade pattern and explores the possibility that it has been welfare-enhancing. Econometric results indicate that industrial policies have had an impact on Japan's trade specialization. These results are obtained contemporaneously and when the explanatory variables are lagged, suggesting either that policymakers have been forward-looking or that policy interventions have had persistent, long-lasting effects. Although some cases of successful targeting are uncovered, welfare-enhancing interventions appear to have been the exception, not the rule. Copyright 1993 by MIT Press.
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