IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2006.04624.html
   My bibliography  Save this paper

Vertical vs. Horizontal Policy in a Capabilities Model of Economic Development

Author

Listed:
  • Alje van Dam
  • Koen Frenken

Abstract

Against the background of renewed interest in vertical support policies targeting specific industries or technologies, we investigate the effects of vertical vs. horizontal policies in a combinatorial model of economic development. In the framework we propose, an economy develops by acquiring new capabilities allowing for the production of an ever greater variety of products with an increasing complexity. Innovation policy can aim to expand the number of capabilities (vertical policy) or the ability to combine capabilities (horizontal policy). The model shows that for low-income countries, the two policies are complementary. For high-income countries that are specialised in the most complex products, focusing on horizontal policy only yields the highest returns. We reflect on the model results in the light of the contemporary debate on vertical policy.

Suggested Citation

  • Alje van Dam & Koen Frenken, 2020. "Vertical vs. Horizontal Policy in a Capabilities Model of Economic Development," Papers 2006.04624, arXiv.org.
    • Handle: RePEc:arx:papers:2006.04624
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2006.04624
    File Function: Latest version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bresnahan, Timothy F. & Trajtenberg, M., 1995. "General purpose technologies 'Engines of growth'?," Journal of Econometrics, Elsevier, vol. 65(1), pages 83-108, January.
    2. Charles D. Brummitt & Kenan Huremović & Paolo Pin & Matthew H. Bonds & Fernando Vega-Redondo, 2017. "Contagious disruptions and complexity traps in economic development," Nature Human Behaviour, Nature, vol. 1(9), pages 665-672, September.
    3. Mariana Mazzucato, 2018. "Mission-oriented innovation policies: challenges and opportunities," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(5), pages 803-815.
    4. Olivier Cadot & Céline Carrère & Vanessa Strauss-Kahn, 2011. "Export Diversification: What's behind the Hump?," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 590-605, May.
    5. Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," Papers 0909.3890, arXiv.org.
    6. Jean Imbs & Romain Wacziarg, 2003. "Stages of Diversification," American Economic Review, American Economic Association, vol. 93(1), pages 63-86, March.
    7. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 551-575.
    8. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2007. "What you export matters," Journal of Economic Growth, Springer, vol. 12(1), pages 1-25, March.
    9. Raymond Vernon, 1966. "International Investment and International Trade in the Product Cycle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(2), pages 190-207.
    10. Sabiou Inoua, 2016. "A Simple Measure of Economic Complexity," Papers 1601.05012, arXiv.org, revised May 2023.
    11. Ha‐Joon Chang & Antonio Andreoni, 2020. "Industrial Policy in the 21st Century," Development and Change, International Institute of Social Studies, vol. 51(2), pages 324-351, March.
    12. Sanjaya Lall, 2000. "The Technological Structure and Performance of Developing Country Manufactured Exports, 1985-98," Oxford Development Studies, Taylor & Francis Journals, vol. 28(3), pages 337-369.
    13. Anna J. Wieczorek & Marko P. Hekkert, 2012. "Corrigendum to 'Systemic instruments for systemic innovation problems: A framework for policy makers and innovation scholars'," Science and Public Policy, Oxford University Press, vol. 39(6), pages 842-842, December.
    14. Ricardo Hausmann & César Hidalgo, 2011. "The network structure of economic output," Journal of Economic Growth, Springer, vol. 16(4), pages 309-342, December.
    15. Karl Aiginger, 2007. "Industrial Policy: Past, Diversity, Future; Introduction to the Special Issue on the Future of Industrial Policy," Journal of Industry, Competition and Trade, Springer, vol. 7(3), pages 143-146, December.
    16. T. M. A. Fink & M. Reeves & R. Palma & R. S. Farr, 2016. "Serendipity and strategy in rapid innovation," Papers 1608.01900, arXiv.org, revised Mar 2017.
    17. John Sutton & Daniel Trefler, 2016. "Capabilities, Wealth, and Trade," Journal of Political Economy, University of Chicago Press, vol. 124(3), pages 826-878.
    18. T. M. A. Fink & M. Reeves & R. Palma & R. S. Farr, 2017. "Serendipity and strategy in rapid innovation," Nature Communications, Nature, vol. 8(1), pages 1-9, December.
    19. Nathaniel Lane, 2020. "The New Empirics of Industrial Policy," Journal of Industry, Competition and Trade, Springer, vol. 20(2), pages 209-234, June.
    20. Anna J. Wieczorek & Marko P. Hekkert, 2012. "Systemic instruments for systemic innovation problems: A framework for policy makers and innovation scholars," Science and Public Policy, Oxford University Press, vol. 39(1), pages 74-87, February.
    21. Cimoli, Mario & Dosi, Giovanni & Stiglitz, Joseph E. (ed.), 2009. "Industrial Policy and Development: The Political Economy of Capabilities Accumulation," OUP Catalogue, Oxford University Press, number 9780199235278.
    22. Philippe Aghion & Julian Boulanger, 2011. "Rethinking industrial policy," Bruegel Policy Brief 566, Bruegel.
    23. Dominique Foray, 2019. "On sector-non-neutral innovation policy: towards new design principles," Journal of Evolutionary Economics, Springer, vol. 29(5), pages 1379-1397, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tacchella, Andrea & Zaccaria, Andrea & Miccheli, Marco & Pietronero, Luciano, 2023. "Relatedness in the era of machine learning," Chaos, Solitons & Fractals, Elsevier, vol. 176(C).
    2. Andrea Tacchella & Andrea Zaccaria & Marco Miccheli & Luciano Pietronero, 2021. "Relatedness in the Era of Machine Learning," Papers 2103.06017, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alje van Dam & Koen Frenken, 2019. "Variety, Complexity and Economic Development," Papers 1903.07997, arXiv.org.
    2. Dam, Alje van & Frenken, Koen, 2022. "Variety, complexity and economic development," Research Policy, Elsevier, vol. 51(8).
    3. Koen Frenken & Frank Neffke & Alje van Dam, 2023. "Capabilities, institutions and regional economic development: a proposed synthesis," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 16(3), pages 405-416.
    4. Poncet, Sandra & Starosta de Waldemar, Felipe, 2013. "Export Upgrading and Growth: The Prerequisite of Domestic Embeddedness," World Development, Elsevier, vol. 51(C), pages 104-118.
    5. Sandra Poncet & Felipe Starosta, 2013. "Export upgrading and growth in China: the prerequisite of domestic embeddedness," PSE - G-MOND WORKING PAPERS halshs-00960684, HAL.
    6. Ulrich Schetter & Dario Diodato & Eric S. M. Protzer & Frank Neffke & Ricardo Hausmann, 2024. "From Products to Capabilities: Constructing A Genotypic Product Space," Growth Lab Working Papers 230, Harvard's Growth Lab.
    7. Petralia, Sergio & Balland, Pierre-Alexandre & Morrison, Andrea, 2017. "Climbing the ladder of technological development," Research Policy, Elsevier, vol. 46(5), pages 956-969.
    8. repec:hal:pseose:halshs-00960684 is not listed on IDEAS
    9. Mealy, Penny & Teytelboym, Alexander, 2017. "Economic Complexity and the Green Economy," INET Oxford Working Papers 2018-03, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, revised Feb 2019.
    10. Hidalgo, César A., 2023. "The policy implications of economic complexity," Research Policy, Elsevier, vol. 52(9).
    11. Lectard, Pauline & Rougier, Eric, 2018. "Can Developing Countries Gain from Defying Comparative Advantage? Distance to Comparative Advantage, Export Diversification and Sophistication, and the Dynamics of Specialization," World Development, Elsevier, vol. 102(C), pages 90-110.
    12. Peñaranda Molina, Diego Andrés, 2021. "Determinantes de la diversificación de exportaciones en Sudamérica: un análisis con datos de panel," Documentos de trabajo 3/2021, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    13. Mealy, Penny & Teytelboym, Alexander, 2022. "Economic complexity and the green economy," Research Policy, Elsevier, vol. 51(8).
    14. Bahar, Dany & Santos, Miguel A., 2018. "One more resource curse: Dutch disease and export concentration," Journal of Development Economics, Elsevier, vol. 132(C), pages 102-114.
    15. Andreas Reinstaller & Elisabeth Christen & Harald Oberhofer & Peter Reschenhofer, 2016. "Eine Analyse der Wettbewerbsfähigkeit Österreichs im bilateralen Handel mit den USA (TTIP)," WIFO Studies, WIFO, number 58723.
    16. Castañeda, Gonzalo & Pietronero, Luciano & Romero-Padilla, Juan & Zaccaria, Andrea, 2022. "The complex dynamic of growth: Fitness and the different patterns of economic activity in the medium and long terms," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 231-246.
    17. Farmer, J. Doyne & Mealy, Penny & Teytelboym, Alexander, 2018. "A New Interpretation of the Economic Complexity Index," INET Oxford Working Papers 2018-04, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    18. Bahar, Dany & Rosenow, Samuel & Stein, Ernesto & Wagner, Rodrigo, 2019. "Export take-offs and acceleration: Unpacking cross-sector linkages in the evolution of comparative advantage," World Development, Elsevier, vol. 117(C), pages 48-60.
    19. Hailu, Degol & Kipgen, Chinpihoi, 2017. "The Extractives Dependence Index (EDI)," Resources Policy, Elsevier, vol. 51(C), pages 251-264.
    20. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "Reprint of The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(8).
    21. Sèna Kimm Gnangnon, 2024. "The quality of Aid for Trade flows and economic complexity," International Economics and Economic Policy, Springer, vol. 21(4), pages 705-747, October.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2006.04624. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.