Industrial Policy Class

This is a course webpage, along with the Canvas page, for Dr. Nathaniel Lane’s Industrial Policy and Development module. Please find the detailed sylabus below. Other content to be posted as the term evolves.

Announcements will be posted on the class Teams and Canvas, and change on here as the class evolves. This page will provide details of class lectures: http://nathanlane.info/industrialpolicyclass.

Module Syllabus Home

University of Oxford’s Economic Development MSc. Hilary Term, 2021.

Dr. Nathan Lane, A/Prof. Oxford, Fellow Merton College. Email me at nathaniel.lane@economics.ox.ac.uk.

Lectures - Fridays, 3.00–5.00pm (GMT) - Online MScED Zoom Room

Classes - Thursdays, 3.30–4.30pm (GMT) (Weeks 6–8) and Saturday, 10.30–11.30 (GMT) (Week 8 only) - Online MScED Zoom Room

Teams Group for Module - Ongoing. On the Canvas course webpage I have posted the update for a Teams Group for the class. Use it to access the Teams group for this industrial policy class.

Syllabus - Table of Contents

Industrial Policy Module Introduction
1. Objectives
Schedule and Structure
Office Hours, Communication, & Advising.
Lecture Topics and Schedule

Industrial Policy Module Introduction

This module is about industrial policy and industrial development. More precisely, how the former is used to promote the latter. We will study the means by which states encourage (or, historically, stymie) the evolution of industry, and shape the composition of economic activity. In doing so, we will attempt to understand the practice of industrial policy; the arguments for and against; and the ways in which we can start thinking about industrial policies empirically.

This class will focus on practice and evidence. While this class covers theoretical arguments behind industrial policy, the focus will be on empirics. More precisely, how scholars, practitioners, and policymakers might evaluate the efficacy of these policies. This class is an excellent follow-up to Douglas Gollin’s structural transformation module and complements Christian Meyer’s labour and firms module. However, none of these are necessary.

Objectives

The objective of this course is to understand core concepts around industrial promotion policies in developing economies. This module is new. And it is also short. Thus, it is not exhaustive. Accordingly, the goal is to provide broad, conceptual clarity of main ideas and to review issues at the heart of this literature.

Some of the objectives include understanding

horizontal vs. vertical targeting and policies.
industrial policy levers - including subsidies, tariffs, quotas.
static versus dynamic comparative advantage and welfare concepts.
frictions and external economy arguments of behind interventions.
political economy and government failures and critiques of policy.
trade policy and its relationship to industrial policy.
the role of trade and industrial development outcomes.
input-output linkages and economies of scale concepts.

Schedule and Structure

Lecture and Class Schedule

This module is for the Development Economics MSc. and will take place the second half of Oxford’s Hilary term (weeks 5-8). Lectures and classes are held in the Online MScED Zoom Room.

The meeting times,

Week 5 - Lecture 1 - Friday, 3.00–5.00pm (GMT)
Week 6 - Class 1 - Thurday, 3.30–4.30pm (GMT)
Week 6 - Lecture 2 - Friday, 3.00–5.00pm (GMT)
Week 7 - Class 2 - Thurday, 3.30–4.30pm (GMT)
Week 7 - Lecture 3 - Friday, 3.00–5.00pm (GMT)
Week 8 - Class 3 - Thurday, 3.30–4.30pm (GMT)
Week 8 - Lecture 4 - Friday, 3.00–5.00pm (GMT)
Week 9 - Class 4 - Friday, 3.30–5.00pm (GMT) [Rescheduled.]

I will also schedule revision sessions in Trinity Term for students who wish to talk through sample essay topics and to prepare for exams. These dates are TBD. Watch this space.

Organisation

This module is composed of four blocks, each with a distinct theme. Main topics are covered in the main two-hour lecture; and the supplementary one-hour class will delve more in-depth into a topic. From the Block 2 and onwards, students will have the opportunity to present papers in the one-hour extra classes.

Block 1: Introducing the ideas of industrial policy and its relationship to industrial development.
Block 2: Dynamic externalities and learning-by-doing.
Block 3: Network externalities, linkages, and clusters.
Block 4: The role of trade activity and trade policy as means of industrial development.

The contents of these blocks may change slightly. So keep an eye on this live syllabus. I will announce substantive changes as they arise.

Office Hours, Communication, & Advising.

E-Mail - It always helps to refer to the module name in the header of your mail (“Industrial Policy Class…“).

I do my best to answer e-mails quickly. If for some reason you do not get a response, just nudge me. Especially with remote teaching, things can fall through the cracks. You can also reach out to me of the Teams Group as well.

Office Hours - I will hold regular teaching office hours each week. You do not need an appointment to see me during offce hours. I will provide a link to the Zoom office hours room for this.

Week 6 - Thursday, 5:30 PM - 6:30 PM
Week 7 - Thursday, 5:30 PM - 6:30 PM
Week 8 - Thursday, 5:30 PM - 6:30 PM
Week 9 - Thursday, 5:30 PM - 6:30 PM

You can also schedule individual Zoom meetings with me for more extensive discussions. Just email me.

Lecture Topics and Schedule

The main lecture each week will consist of a two-hour session. These lectures will usually be broken into two topics or so. Please note that the lectures may cover additional papers and omit some of those on the list.

The extra class following each main lecture, we will dive into a topic deeper with a one-hour class.

Classes for Weeks 5 and 6 will be discussion based.
Classes Week 7, 8 (Thurs.), and 8 (Sat.), you there are presentation slots available. These classes will be a chance for you to also book a twenty-minute summary and discussion of one of the topic papers we cover. Choose any you like. Or if you find one that is related and cool, let me know, and we can have you present it.

Readings

Readings are broken down by those required for the command of lecture material, and the other stuff.

Don’t panic about seeing a lot of class material. Much of it is for you own reading and review. We’re scholars, so we’re pedantic.

Lectures draw extensively from required readings. Suggested readings can also appear in lectures, but you don’t have to read those. If you track the required readings you will be set.

Further readings are for those who want to get into the weeds of a topic. Or if you want to troll my knowledge in class.

If you are in doubt about what reading to do, just ask me. I will try to post slides and/or notes after the two-hour lectures.

Part 1 - Concepts, Definitions, and Justifications.

Lecture Readings

Introduction to industrial policy as a concept–-and the controversies surrounding it. The goal of this class will be to organize the taxonomy of the justifications for (and against) these interventions. Specifically, the various market failures and imperfections that are justifications for these policies.

Required Readings.

Rodrik, D. (2008). Normalizing Industrial Policy (No. 28009; World Bank Publications). The World Bank.
Rodrik, D. (2008). Second-Best Institutions. The American Economic Review, 98(2), 100–104. http://www.jstor.org/stable/29730003
[Part 1 & 2 Only] Harrison, A., & Rodríguez-Clare, A. (2010).* Trade, Foreign Investment, and Industrial Policy for Developing Countries. In D. Rodrik & M. Rosenzweig (Eds.), Handbooks in Economics (Vol. 5, pp. 4039–4214). Elsevier.

Suggested Readings.

Pack, H., & Saggi, K. (2006). Is There a Case for Industrial Policy? A Critical Survey. The World Bank Research Observer, 21(2), 267–297. https://doi.org/10.1093/wbro/lkl001
Stiglitz, J. E. (1993). The Role of the State in Financial Markets. The World Bank Economic Review, 7(1), 19–52. https://doi.org/10.1093/wber/7.suppl_1.19

Further Readings.

Baldwin, R. E. (1969). The Case against Infant Industry Tariff Protection. Journal of Political Economy, 77(3), 295–305.
Lipsey, R. G. (2007). Reflections on the general theory of second best at its golden jubilee. International Tax and Public Finance, 14(4), 349–364. https://doi.org/10.1007/s10797-007-9036-x
Greenwald, B. C., & Stiglitz, J. E. (1986). Externalities in Economies with Imperfect Information and Incomplete Markets. The Quarterly Journal of Economics, 101(2), 229–264. https://doi.org/10.2307/1891114
Lin, J. Y., & Monga, C. (2013). Comparative Advantage: The Silver Bullet of Industrial Policy. In J. E. Stiglitz & J. Y. Lin (Eds.), The Industrial Policy Revolution I: The Role of Government Beyond Ideology (pp. 19–38). Palgrave Macmillan UK. https://doi.org/10.1057/9781137335173_2

Associated Class Readings (Political economy of industrial policy.)

This class will be a short lecture. Continuation of Lecture 1. Here I will cover the political economy of industrial policy. Then explain what this means for the empirical problems faced by industrial policy studies. As well as growth regressions more generally.

Required Readings.

Krueger, A. O. (1974). The Political Economy of the Rent-Seeking Society. The American Economic Review, 64(3), 291–303. http://www.jstor.org/stable/1808883
Krueger, A. O. (1990). Government Failures in Development. The Journal of Economic Perspectives, 4(3), 9–23.
Lane, N. (2020). The New Empirics of Industrial Policy. Journal of Industry, Competition and Trade, 1(2), 1–26. https://doi.org/10.1007/s10842-019-00323-2

Suggested Readings.

Maloney, W. F., & Nayyar, G. (2018). Industrial Policy, Information, and Government Capacity. The World Bank Research Observer, 33(2), 189–217. http://dx.doi.org/10.1093/wbro/lkx006
Rodrik, D. (2012). Why We Learn Nothing from Regressing Economic Growth on Policies. Seoul Journal of Economics, 25(2), 137–151.
Beason, R., & Weinstein, D. E. (1996). Growth, Economies of Scale, and Targeting in Japan (1955-1990). The Review of Economics and Statistics, 78(2), 286–295.

Further Readings.

Oleg Itskhoki and Ben Moll's write-up on the argument of interventions in the presence of financial frictions. See: VoxDev.
Pack, H. (2000). Industrial Policy: Growth Elixir or Poison? The World Bank Research Observer, 15(1), 47–67.
Krueger, A. O., & Tuncer, B. (1982). An Empirical Test of the Infant Industry Argument. American Economic Review, 72(5), 1142–1152. http://www.jstor.org/stable/1812029
Harrison, A. E. (1994). An empirical test of the infant industry argument: Reply. American Economic Review, 84(4), 1096. https://doi.org/10.2307/2118048
Evans, P. B. (1992). The State as Problem and Solution: Predation, Embedded Autonomy, and Structural Change. In S. Haggard & Robert R. Kaufman (Eds.), The Politics of Economic Adjustment: International Constraints, Distributive Conflicts and the State (pp. 139–181). Princeton University Press.

Part 2 - Learning-by-doing: within firm and across firm learning-by-doing.

Lecture Readings

In this section we get more precise about about another justification for industrial policy: learning-by-doing. We split the lecture and class into internal and external scale economies. Put differently, learning-by-doing forces that exist within the firm and learning-by-doing spillovers across firms, usually within an industry.

Required Readings.

[Part 1 & 2 Only] Harrison, A., & Rodríguez-Clare, A. (2010).* Trade, Foreign Investment, and Industrial Policy for Developing Countries. In D. Rodrik & M. Rosenzweig (Eds.), Handbooks in Economics (Vol. 5, pp. 4039–4214). Elsevier.
Lucas, R. E. (1993). Making a Miracle. Econometrica, 61(2), 251–272. https://doi.org/10.2307/2951551
Thornton, R. A., & Thompson, P. (2001). Learning from Experience and Learning from Others: An Exploration of Learning and Spillovers in Wartime Shipbuilding. American Economic Review, 91(5), 1350–1368. http://www.aeaweb.org/articles?id=10.1257/aer.91.5.1350

Suggested Readings.

Levitt, S. D., List, J. A., & Syverson, C. (2013). Toward an Understanding of Learning by Doing: Evidence from an Automobile Assembly Plant. Journal of Political Economy, 121(4), 643–681. https://doi.org/10.1086/671137
Hanlon, W. (2018). The Persistent Effect of Temporary Input Cost Advantages in Shipbuilding, 1850-1911.
Mitrunen, M. (2019). War Reparations, Structural Change, and Intergenerational Mobility.
Melitz, M. J. (2005). When and how should infant industries be protected? Journal of International Economics, 66(1), 177–196. https://doi.org/https://doi.org/10.1016/j.jinteco.2004.07.001

Further Readings.

Hanlon, W. (2018). Skilled Immigrants and American Industrialization: Lessons from Newport News Shipyard.
Thompson, P. (2010). Chapter 10 - Learning by Doing. In B. H. Hall & I. Rosenberg (Eds.), Handbook of The Economics of Innovation, Vol. 1 (Vol. 1, pp. 429–476). North-Holland. https://doi.org/https://doi.org/10.1016/S0169-7218(10)01010-5
Also see Bartik versus Neumark: Bartik, T. J. (2020). SMART PLACE-BASED POLICIES CAN IMPROVE LOCAL LABOR MARKETS. Journal of Policy Analysis and Management, 39(3), 844–851. https://doi.org/https://doi.org/10.1002/pam.22224
Neumark, D. (2020). WHAT PLACES SHOULD WE TARGET, AND HOW? Journal of Policy Analysis and Management, 39(3). https://doi.org/10.1002/pam.22227

Associated Class (Learning by doing and within industry spillovers)

In this class we will build on firm-level learning by doing and consider the following papers. This time as as they relate to the idea of industry-level spillovers.

[Only one from required list.] Thornton, R. A., & Thompson, P. (2001). Learning from Experience and Learning from Others: An Exploration of Learning and Spillovers in Wartime Shipbuilding. American Economic Review, 91(5), 1350–1368. http://www.aeaweb.org/articles?id=10.1257/aer.91.5.1350
Hanlon, W. (2019). The Persistent Effect of Temporary Input Cost Advantages in Shipbuilding, 1850-1911.
Mitrunen, M. (2019). War Reparations, Structural Change, and Intergenerational Mobility.
Hanlon, W. (2018). Skilled Immigrants and American Industrialization: Lessons from Newport News Shipyard.

Part 3 - Spillovers from Linkages, Clusters, and Foreign Direct Investment

Lecture Readings

The old and new: linkages. Linkages have an old idea in development economics. How to think about them, what do they mean, what is current work saying? This will include how to think the practicalities of the input-output table, and how they're used in discussing industrial policy practice.

We use the old idea of linkages to also consider the role they play in foreign direct investment (FDI). While FDI can be considered distinct from industrial policy, the benefits of FDI are thought to accrue through linkages. These linkage effects of FDI are a bit different than those associated with classic “hard” industrial interventions.

Required Readings.

Javorcik, B. S. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. The American Economic Review, 94(3), 605–627.
Blonigen, B. A. (2016). Industrial Policy and Downstream Export Performance. Economic Journal, 126(595), 1635–1659. https://doi.org/10.1111/ecoj.12223
Alfaro, L., & Rodríguez-Clare, A. (2004). Multinationals and Linkages: An Empirical Investigation. Economía, 7(4), 113–169. https://doi.org/10.1353/eco.2004.0012

Suggested Readings.

Lane, N. (2019). Manufacturing Revolutions. Industrial Policy and Industrial Development in South Korea. Working Paper.
Rodríguez-Clare, A. (2007). Clusters and comparative advantage: Implications for industrial policy. Journal of Development Economics, 82(1), 43–57. https://doi.org/https://doi.org/10.1016/j.jdeveco.2005.09.001

Further Readings.

Beata Javorcik's on lessons from her FDI research on VoxDec
Rodríguez-Clare, A. (1996). Multinationals, Linkages, and Economic Development. The American Economic Review, 86(4), 852–873.
Martin Rotemberg's VoxDev writeup on industrial policy subsidues and their general equilibrium effects
[FDI Section] Harrison, A., & Rodríguez-Clare, A. (2010). Trade, Foreign Investment, and Industrial Policy for Developing Countries. In D. Rodrik & M. Rosenzweig (Eds.), Handbooks in Economics (Vol. 5, pp. 4039–4214). Elsevier.
Giorcelli, M. (2019). The Long-Term Effects of Management and Technology Transfers. American Economic Review, 109(1), 1–33.

Associated Class Readings (Diving deeper into industrial networks.)

In this classed we considered industrial networks more seriously. Thinking about my work along with a student presentation of Liu. Please note: you should know industrial networks, but you do not need to know these papers in a detailed way. The goal, rather, is to understand the nature of network spillovers. In particular, forward and backward linkage effects

Liu, E. (2019). Industrial Policies in Production Networks. Quarterly Journal of Economics, Forthcoming.

Part 4 - Trade - Infant Industry Protection and Export-Led Industrial Development

Lecture Readings

We now turn to industrial policy and justifications in the realm of trade. The first part of the lecture considers why arguments around protectionism may still linger and how they relate to learning-by-doing externalities. In addition, we consider the theoretical justifications for protection from import competition through the lens of Schumpeterian dynamics and the scale economies introduced by knowledge.

Required Readings.

Nunn, N., & Trefler, D. (2010). The Structure of Tariffs and Long-Term Growth. American Economic Journal: Macroeconomics, 2(4), 158–194.
Juhasz, R. (2018). Temporary Protection and Technology Adoption: Evidence from the Napoleonic Blockade. American Economic Review, 108(11), 3339–3376. https://doi.org/https://doi.org/10.1257/aer.20151730

Suggested Readings.

Reka Juhasz's VoxEU write-up on the Napoleonic Blockade.
Bhagwati, J. N. (1988). Export-Promoting Trade Strategy: Issues and Evidence. The World Bank Research Observer, 3(1), 27–57. http://www.jstor.org/stable/3986522
Kramarz, F., Martin, J., & Mejean, I. (2019) write-up “Idiosyncratic risks and the volatility of trade” on VoxEU

Further Readings.

Harding, T., Javorcik, B. S., & Maggioni, D. (2020). FDI Promotion and Comparative Advantage. http://users.ox.ac.uk/~econ0247/Harding_Javorcik_Maggioni.pdf
Greenwald, B., & Stiglitz, J. E. (2006). Helping Infant Economies Grow: Foundations of Trade Policies for Developing Countries. American Economic Review, 96(2), 141–146. http://www.aeaweb.org/articles?id=10.1257/000282806777212206
Atkin, D., Donaldson, D., Rasul, I., Teachout, M., Verhoogen, E., & Woodruff, C. (2019). Firms, trade, and productivity (IGC Evidence Paper, Issue December).
Belloc, M., & Maio, M. Di. (2011). Survey of the Literature on Successful Strategies and Practices for Export Promotion by Developing Countries (Survey of the Literature on Successful Strategies and Practices for Export Promotion by Developing Countries).
Verhoogen, E. (2020). Firm‐Level Upgrading in Developing Countries (No. 83; CDEP‐CGEG).

Associated Class Readings (Export-Promotion and Empirics)

While the trade lecture focused on ISI and protectionism, we now turn to export activity.

Freund, C., & Pierola, M. D. (2015). Export Superstars. The Review of Economics and Statistics, 97(5), 1023–1032. http://www.jstor.org/stable/43830293
Harding, T., & Javorcik, B. S. (2011). Foreign Direct Investment and Export Upgrading. The Review of Economics and Statistics, 94(4), 964–980. https://doi.org/10.1162/REST_a_00226