1 - Concepts, Definitions, and Justifications.
Lecture 1 overview: Hilary Term Week 5. Two hour lecture, MSc. Dev. room.
Below I summarise key aspects of the lecture and provide the sources used in the lecture.
This lecture was focused on basics conceptual basics, and organised as follows:
In a sense, we want to set the terms of the class. In particular, one that is about how industrial policy affects industrial development (if at all).
To even think about this we have to do a couple of things. Define the concepts surrounding industrial policy. As well, to define why we care about industrial development.
What is industrial policy?
Here we actually get pretty boring and pedantic about the definition. I give an all encompassing definition, but then get more specific.
Why?–Why do definitions matter?
First, the in unpacking definitions, we see ambiguity about the unit of analysis. That is, a tug of war between units of analysis. On one hand, notions aggregate industrial development that policymakers may be aspiring to (shifting the composition of industrial development, or activity in some way). One the other hand, the targeting and allocation of policy towards certain sectors.
Second, the definition of industrial policy we’re concerned with entails “intentional state action.” Industrial policy is necessarily the purview of the state, and thus is intimately intertwined with aspects of the state.
Third, within the definition of industrial policy (as many people discuss it) is a counter-factual. Consider the case of national-level policy. Here, we are deploying policy with hopes some aggregate industrial outcome evolving differently, than had the economy not experienced that intervention.
Thus, in the class the definition opens up conceptual and empirical issues that will be repeated in each lecture.
Wither industrial policy? In a globalised world.
I also discuss the aspects of industrial policy in a (post) globalised world.
In particular, we ask do these policies matter in terms of,
First, the international, Neoliberal institutions that constrain the use of conventional (postwar) industrial policies. We consider the use of non-tariff barriers over the past 15 years against the reduction in tariffs over second half of the 20th century.
Second, the emergence of global value chain and the fragmentation of production across the globe. In doing so, we consider the “smile curve” – and what it may mean for policymakers in middle and Lower income countries.
Three, resent alarming trends. Beyond the reversal of trade, we consider the industrial policies in use–as we speak–in countries and markets afflicted by COVID.
The later is an entry point for thinking about an import aspect of the class–how to think about market failures and second best policy.
Theories of Second-Best and Market Failures.
Finally, we touched on the important conceptual arguments underlying industrial policy: market failures.
Before doing so we consider, first, what we mean by policy-making in a “second-best world.” The key point here is to understand the general contours of the arguments between first-best and second-best policy making. This tension will inform the debate around industrial policy.
We used Dani Rodrik’s short article on the second best policy making to then think about the circumstances underlying industrial policy interventions: market failures.
Many of the readings on the course list and many reviews of industrial policy try to review, catalog, and organise coherent taxonomies of market failures that underpin their application. The taxonomy I present is ad hoc and loose. Mainly for the purposes of organising the class content.
This is just meant to be illustrative. In general, the more I think about market failures, the harder I find it to organise them in analytically clean ways.
(Next) Government Failures vs. Market Failure.
While theoretical justifications for industrial seem plentiful, why is there controversies? The next class (Class 1), juxtaposes the theoretical optimism surrounding interventions with the political realities that coincided with the use of industrial policy. Specifically, in the rise of modern, structural development.
Bibliography.
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Hausmann, R., Hwang, J., & Rodrik, D. (2007). What you export matters. Journal of Economic Growth, 12(1), 1–25. Jarreau, J., & Poncet, S. (2012). Export sophistication and economic growth: Evidence from China. Journal of Development Economics, 97(2), 281–292. https://doi.org/10.1016/j.jdeveco.2011.04.001
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Meng, B., Ye, M., & Wei, S.-J. (2020). Measuring Smile Curves in Global Value Chains. Oxford Bulletin of Economics and Statistics, 82(5), 988–1016. https://doi.org/10.1111/obes.12364
Niu, Z., Liu, C., Gunessee, S., & Milner, C. (2018). Non-tariff and overall protection: evidence across countries and over time. Review of World Economics, 154(4), 675–703. https://doi.org/10.1007/s10290-018-0317-5
Rodrik, D. (2008a). Normalizing Industrial Policy (No. 3; Commission on Growth and Development, Working Paper Number 3). Rodrik, D. (2008b). Second-Best Institutions. The American Economic Review, 98(2), 100–104.http://www.jstor.org/stable/29730003
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