Export-Led Industrial Policy for Developing Countries: Is There a Way to Pick Winners?

Abstract

Industrial policy prioritizes growth in specific sectors. Yet there is little agreement about how to target sectors in practice, and many argue that governments cannot pick winners. This essay observes that governments can and do identify tradable sectors where public inputs accelerate growth and generate economic benefits. These strategic sectors are: (1) those that are relatively more productive, and (2) those that are relatively less productive but require technology like the country’s existing technology and have rapidly growing markets and limited international competition. Since developing countries are productive in fewer sectors and have less technology, targeting can be more valuable for them. Export promotion agencies are institutions that have demonstrated effectiveness in coordinating public inputs to grow these sectors. Compared to protectionism, this alternative approach to ‘industrial policy’ is cheaper, less susceptible to capture by unproductive firms, and permissible under the rules of international trade agreements. Many countries’ development strategies adopt this approach.

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