Upload
abdul-malik-omar
View
120
Download
2
Embed Size (px)
Citation preview
Vertical Industrial Policy: An illusion for poverty reduction!
Elena Pici, Yunji Choi, Julia Tory, Hadil Siklawi,
Merve Ozcan, Abdul Malik Omar
Table of Content1. Define Industrial Policy2. Arguments against Industrial Policy3. Preconditions of Industrial Policy4. Case Study: Malaysia5. Case Study: Sierra Leone6. Regional Policy Recommendations
Vertical vs Horizontal Industrial Policy
1. Vertical Industrial Policy – ‘selective’ or ‘targeting’ policy which deliberately favors particular industries/sectors (or even firms) over others, against market signals, usually (but not necessarily) to enhance efficiency and promote productivity growth, for the whole economy as well as for the targeted industries themselves ( Pack & Sagi, 2006)
2. Horizontal Industrial Policy - policy focus on ‘public goods’ that benefit all industries equally but are likely to be under-provided by the market – e.g., education, research and development (R&D), and infrastructure – and not involve ‘picking winners’
Embeddedness of vertical industrial policy in an institutional framework of a region
Countries at early stages of institutional development should avoid selective policies
and focus instead on reforming the overall investment climate.
As a strong supporter of vertical industrial policy would suggest, “in general, the lower
the capabilities, accountability and commitment of the government the lower the
degree of selectivity it can be safely entrusted with” (Lall, 2004).
Arguments Against:
1. Sectional interests, rent-seeking and corruption
2. Asymmetric Information/ Lack of coordination
3. Inflexibility of industrial policy
4. Lack of government and private sector capabilities
5. Opportunity costs
6. Targeting the wrong sector
7. Susceptible to shocks
Argument Against6. Targeting the wrong sector and Misallocation of
resources
“...number of industries that were apparently
producing negative value added at world prices, …
shutting these industries down would have
increased national output”
Rodrik (2008)
Argument AgainstExample: Case studies of industries in India, Pakistan,
Mexico, and Brazil
● 6 cases where market yield was higher than the
social yield
● 3 were actually harmful to the economy
Argument Against7. Susceptible to external or macroeconomic shocks
Example: Uruguay’s Forestry and Wood Industry
● Involved long-term investment
● Subsidizing planting costs and Tax exemptions
● As financial crisis hit Uruguay, subsidy payment
was postponed
The Three Preconditions for Industrial PolicySustainable Development
Framework
Effective Governance Inclusive Institutions
Oppositions’ lacking preconditions for Industrial Policy
Unsustainable
Development
Weak governance
Weak Governance Extractive Institutions
Data on Malaysia • Current economic situation in Malaysia
• Some growth signals
• Malaysia:upper middle-income country
• Definition of middle-income trap
• World Bank’s 2014 thresholds for upper middle-income class (GNI per capita) :
$4,125-$12,746
MIDDLE-INCOME TRAP: Case Study: Malaysia
MIDDLE-INCOME TRAP: Case Study: Malaysia
Technology creation in Malaysia is
really low!
• Innovation-driven growth is the key!
• Development of new technologies for new goods
• Production of the same set of goods
The Missing Links: Case Study:MalaysiaReasons of patents & technology scarcity:
Lower levels of education Lower R&D Spending
Conclusion: Malaysia needs horizontal industrial policies!
Conclusion: Malaysia needs horizontal industrial policies!!
The Case of AfricaBy 2030, Africa will be home to 80% of the
world’s population living below the poverty
line (African Economic Outlook, 2015)
Ultimate goal is structural transformation
towards higher-productivity areas outside of
commodities (AE) 2015; Altenburg and
Melia)
Problem with Narrow Sectoral Policies
“Narrowly-defined sectoral approaches tend to almost exclusively frame
governmental action, hampering effective problem-solving at the local
level” (AEO 2015)
Regional Policies Looking Forward3 main policy strategies of the African Economic Outlook 2015 Report:
1. Focus on local assets
2. Various sectoral policies within a regional
framework
3. Multi-level government involvement with
different actors and active participation of
local stakeholders
“Place-based, multi-sectoral,
participative development strategies”
The Case of Sierra LeoneSierra Leone has rapidly improved its business environment
and begun to implement successful government initiatives in
recent years
Success so far:
Diagnostic Trade Integrated Study (DTIS) (2006 and 2013)
Economic Diversification Pillar in the Agenda for Prosperity
(A4P) (2013-2018)
The Case of Sierra Leone According to the 2013 DTIS Report: “A holistic approach is needed for
trade related strategies and investments to truly achieve their intended
purpose. Such an approach entails investments and strategies be
underpinned by institutional reforms... This has not been the case in Sierra
Leone’s experience with the implementation of the 2006 DTIS, therefore,
the full benefits of progress made in areas like building of hard
infrastructure and adoption of numerous trade related national strategies
have not translated into lower trade costs, value added exports, and reliable
supply chains” (11).
Conclusion
The best industrial policy is none
at all! - The Nobel laureate Gary
Becker
With a few modification of it to adapt to the circumstances of our debate, we claim
that: The best vertical industrial policy for poverty reduction is none at all!