IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/95332.html
   My bibliography  Save this paper

Successes and failures of industrial policy: Lessons from transition (post-communist) economies of Europe and Asia

Author

Listed:
  • Popov, Vladimir

Abstract

- Is industrial policy necessary for successful development or the market “knows” better, how to allocate resources? - If industrial policy is needed, how to select industries that need to be supported? - What are the appropriate tools / instruments to support particular industries? Eastern European countries in general did not have any explicit industrial policy, neither via tax concessions and/or subsidies, nor via under/overpricing the exchange rate. Many countries of former Soviet Union carried out large import substitution programs through regulation of domestic fuel and energy prices (directly and via export tax) that subsidized all energy consumers. They also provided subsidies to agricultural enterprises. China and Vietnam (and to some extent Uzbekistan) were carrying out export oriented industrial policy mostly via underpricing the exchange rate. The paper discusses pros and cons, achievements and failures of various models of industrial policy. It is argued that export oriented industrial policy via undervaluation of the exchange rate is the best possible option to promote export oriented catch up development based on export of manufactured goods. It is especially needed for resource rich countries (Azerbaijan, Kazakhstan, Russia, Turkmenistan, Uzbekistan) that are prone to Dutch disease. Assistance to domestic producers via keeping low domestic prices for fuel and energy also helps to stimulate growth, but at a price of very high energy intensity. Industrial policy that is not targeting particular industries (general support for education, research and development and infrastructure) may be reasonable for counties at a higher level of development.

Suggested Citation

  • Popov, Vladimir, 2019. "Successes and failures of industrial policy: Lessons from transition (post-communist) economies of Europe and Asia," MPRA Paper 95332, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95332
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/95332/1/MPRA_paper_95332.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Popov, Vladimir, 2014. "Сохранит Ли Экономика Узбекистана Высокие Темпы Роста? Сценарии Развития В 2015-30гг [Can Uzbekistan Economy Retain Its High Growth Rate? Scenarios Of Economic Development In 2015-30]," MPRA Paper 59785, University Library of Munich, Germany, revised 15 Oct 2014.
    2. V. Popov, 2013. "Global Imbalances: An Unconventional View," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 1.
    3. Popov Vladimir, 2016. "What can Uzbekistan tell us about industrial policy that we did not already know," Review of Business and Economics Studies, CyberLeninka;Федеральное государственное образовательное бюджетное учреждение высшего профессионального образования «Финансовый университет при Правительстве Российской Федерации» (Финансовый университет), issue 1, pages 5-25.
    4. Popov, Vladimir, 2014. "Can Uzbekistan Economy Retain Its High Growth Rates? Scenarios of Economic Development in 2015-30," MPRA Paper 59735, University Library of Munich, Germany, revised 20 Oct 2014.
    5. Nagesh Kumar & Matthew Hammill & Selim Raihan & Swayamsiddha Panda, 2016. "Strategies for Achieving the Sustainable Development Goals (SDGs) in South Asia: Lessons from Policy Simulations," Development Papers 1601, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) South and South-West Asia Office.
    6. Yevgeniya Shevtsova, 2012. "International Trade and Productivity: Does Destination Matter?," Discussion Papers 12/18, Department of Economics, University of York.
    7. Xavier Sala-i-Martin & Arvind Subramanian, 2013. "Addressing the Natural Resource Curse: An Illustration from Nigeria," Journal of African Economies, Centre for the Study of African Economies, vol. 22(4), pages 570-615, August.
    8. Dani Rodrik, 2006. "What's So Special about China's Exports?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(5), pages 1-19, September.
    9. Vladimir Popov, 2000. "Shock Therapy Versus Gradualism: The End Of The Debate (Explaining The Magnitude Of Transformational Recession)," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 42(1), pages 1-57, April.
    10. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-1026, October.
    11. Dani Rodrik & Arvind Subramanian, 2005. "From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 193-228, September.
    12. Richard Harris & Qian Cher Li, 2007. "Learning-by-Exporting? Firm-Level Evidence for UK Manufacturing and Services Sectors," Working Papers 2007_22, Business School - Economics, University of Glasgow.
    13. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2007. "What you export matters," Journal of Economic Growth, Springer, vol. 12(1), pages 1-25, March.
    14. Popov, V., 2015. "Can Uzbekistan Economy Retain Its High Growth Rate? Scenarios of Economic Development in 2015-2030," Journal of the New Economic Association, New Economic Association, vol. 27(3), pages 163-181.
    15. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941, Elsevier.
    16. Kevin H. O'Rourke & Jeffrey G. Williamson, 2002. "From Malthus to Ohlin: Trade, Growth and Distribution Since 1500," CEG Working Papers 20023, Trinity College Dublin, Department of Economics.
    17. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    18. Page, John, 2011. "Should Africa Industrialize?," WIDER Working Paper Series 047, World Institute for Development Economic Research (UNU-WIDER).
    19. Lee,Keun, 2013. "Schumpeterian Analysis of Economic Catch-up," Cambridge Books, Cambridge University Press, number 9781107042681, September.
    20. Surjit S. Bhalla, 2012. "Devaluing to Prosperity: Misaligned Currencies and Their Growth Consequences," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6239, April.
    21. Justin Yifu Lin, 2013. "From Flying Geese to Leading Dragons: New Opportunities and Strategies for Structural Transformation in Developing Countries," International Economic Association Series, in: Joseph E. Stiglitz & Justin Lin Yifu & Ebrahim Patel (ed.), The Industrial Policy Revolution II, chapter 1, pages 50-70, Palgrave Macmillan.
    22. Gharleghi, Behrooz & Popov, Vladimir, 2018. "Changes in the geographical structure of trade in Central Asia: Real flows in the 1989-2016 period versus gravity model predictions," MPRA Paper 89041, University Library of Munich, Germany.
    23. Oecd, 2017. "Making trade work for all," OECD Trade Policy Papers 202, OECD Publishing.
    24. Aiyar, Shekhar & Duval, Romain & Puy, Damien & Wu, Yiqun & Zhang, Longmei, 2018. "Growth slowdowns and the middle-income trap," Japan and the World Economy, Elsevier, vol. 48(C), pages 22-37.
    25. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.
    26. Vladimir Popov, 2007. "Shock Therapy versus Gradualism Reconsidered: Lessons from Transition Economies after 15 Years of Reforms1," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 49(1), pages 1-31, March.
    27. Polterovich, Victor & Popov, Vladimir, 2005. "Appropriate Economic Policies at Different Stages of Development," MPRA Paper 20066, University Library of Munich, Germany.
    28. John Page, 2011. "Should Africa Industrialize?," WIDER Working Paper Series wp-2011-047, World Institute for Development Economic Research (UNU-WIDER).
    29. repec:bla:devpol:v:27:y:2009:i:5:p:483-502 is not listed on IDEAS
    30. Joseph E. Stiglitz & Justin Lin Yifu & Ebrahim Patel (ed.), 2013. "The Industrial Policy Revolution II," International Economic Association Series, Palgrave Macmillan, number 978-1-137-33523-4, December.
    31. Francisco Rodríguez & Dani Rodrik, 2001. "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 261-338, National Bureau of Economic Research, Inc.
    32. Mr. Eswar S Prasad, 2004. "China's Growth and Integration into the World Economy: Prospects and Challenges," IMF Occasional Papers 2004/006, International Monetary Fund.
    33. V. Popov., 2007. "Shock Therapy versus Gradualism: 15 Years Later," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
    34. Syrquin, Moshe & Chenery, Hollis, 1989. "Three decades of industrialization," MPRA Paper 32771, University Library of Munich, Germany.
    35. Indermit S. Gill & Ivailo Izvorski & Willem van Eeghen & Donato De Rosa, 2014. "Diversified Development : Making the Most of Natural Resources in Eurasia," World Bank Publications - Books, The World Bank Group, number 17193.
    36. Dollar, David, 1992. "Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985," Economic Development and Cultural Change, University of Chicago Press, vol. 40(3), pages 523-544, April.
    37. Bruce C. Greenwald & Joseph E. Stiglitz, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 229-264.
    38. Bruce Greenwald & Joseph E. Stiglitz, 2013. "Learning and Industrial Policy: Implications for Africa," International Economic Association Series, in: Joseph E. Stiglitz & Justin Lin Yifu & Ebrahim Patel (ed.), The Industrial Policy Revolution II, chapter 1, pages 25-49, Palgrave Macmillan.
    39. Reda Cherif & Fuad Hasanov, 2019. "The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy," IMF Working Papers 2019/074, International Monetary Fund.
    40. Jeffrey G. Williamson, 2002. "Winners and Losers Over Two Centuries of Globalization," NBER Working Papers 9161, National Bureau of Economic Research, Inc.
    41. Joseph E. Stiglitz & Justin Yifu Lin (ed.), 2013. "The Industrial Policy Revolution I," International Economic Association Series, Palgrave Macmillan, number 978-1-137-33517-3, December.
    42. Eden, Maya & Kraay, Aart, 2014. ""Crowding in"and the returns to government investment in low-income countries," Policy Research Working Paper Series 6781, The World Bank.
    43. United Nations, 2016. "The Sustainable Development Goals 2016," Working Papers id:11456, eSocialSciences.
    44. Dani Rodrik, 2006. "What’s So Special about China’s Exports?," Working Papers id:410, eSocialSciences.
    45. Joseph E. Stiglitz, 2018. "From manufacturing-led export growth to a twenty-first-century inclusive growth strategy: Explaining the demise of a successful growth model and what to do about it," WIDER Working Paper Series wp-2018-176, World Institute for Development Economic Research (UNU-WIDER).
    46. Polterovich, Victor & Popov, Vladimir & Tonis, Alexander, 2008. "Mechanisms of Resource Curse, Economic Policy and Growth," MPRA Paper 20570, University Library of Munich, Germany.
    47. Victor Polterovich, Vladimir Popov, Alexander Tonis, 2010. "Resource abundance: A curse or blessing?," Working Papers 93, United Nations, Department of Economics and Social Affairs.
    48. Vladimir Popov & K S Jomo, 2018. "Are developing countries catching up? [Aid, growth, and development: have we come full circle]," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(1), pages 33-46.
    49. Gharleghi, Behrooz & Popov, Vladimir, 2018. "Farewell to Agriculture? Productivity Trends and the Competitiveness of Agriculture in Central Asia," MPRA Paper 89520, University Library of Munich, Germany.
    50. V. Polterovich & V. Popov & A. Tonis., 2007. "Mechanisms of Resource Curse and Economic Policy," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
    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. Popov, Vladimir, 2020. "A myth of soft budget constraints in socialist economies," MPRA Paper 99769, University Library of Munich, Germany.
    2. Bošnjak Mile & Kordić Gordana & Novak Ivan, 2021. "Real Effective Exchange Rate and Industrial Productivity in Croatia: Wavelet Coherence Analysis," South East European Journal of Economics and Business, Sciendo, vol. 16(1), pages 30-37, June.
    3. Kuc‑Czarnecka, Marta & Saltelli, Andrea & Olczyk, Magdalena & Reinert, Erik, 2021. "The opening of Central and Eastern European countries to free trade: A critical assessment," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 23-34.

    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. Popov, Vladimir & Chowdhury, Anis, 2015. "What Uzbekistan tells us about industrial policy that we did not know?," MPRA Paper 67013, University Library of Munich, Germany.
    2. V. Popov & В. Попов, 2016. "Секреты И Перспективы Промышленной Политики Узбекистана // What Can Uzbekistan Tell Us About Industrial Policy That We Did Not Already Know," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 4(1), pages 5-25.
    3. Popov, Vladimir, 2010. "Development theories and development experience: half a century journey," MPRA Paper 28111, University Library of Munich, Germany.
    4. Popov, Vladimir, 2023. "Can China maintain high growth rates under the “dual-circulation” decoupling?," MPRA Paper 117953, University Library of Munich, Germany.
    5. Vladimir Popov, 2009. "Why the West Became Rich before China and Why China Has Been Catching Up with the West since 1949: nother Explanation of the “Great Divergence” and “Great Convergence” Stories," Working Papers w0132, New Economic School (NES).
    6. Popov, Vladimir, 2013. "Economic Miracle of Post-Soviet Space: Why Uzbekistan Managed to Achieve What No Other Post-Soviet State Achieved," MPRA Paper 48723, University Library of Munich, Germany.
    7. Popov, Vladimir, 2024. "Китайская Модель: Ретроспектива И Перспектива [The Chinese model: Retrospective and perspective]," MPRA Paper 121802, University Library of Munich, Germany.
    8. Harrison, Ann E. & Rodriguez-Clare, Andres, 2009. "Trade, Foreign Investment, and Industrial Policy," MPRA Paper 15561, University Library of Munich, Germany.
    9. Vladimir Popov, 2009. "Lessons from the Transition Economies: Putting the Success Stories of the Postcommunist World into a Broader Perspective," WIDER Working Paper Series RP2009-15, World Institute for Development Economic Research (UNU-WIDER).
    10. Popov, V., 2015. "Can Uzbekistan Economy Retain Its High Growth Rate? Scenarios of Economic Development in 2015-2030," Journal of the New Economic Association, New Economic Association, vol. 27(3), pages 163-181.
    11. Joseph E. Stiglitz, 2016. "The state, the market, and development," WIDER Working Paper Series 001, World Institute for Development Economic Research (UNU-WIDER).
    12. Popov, Vladimir, 2014. "Can Uzbekistan Economy Retain Its High Growth Rates? Scenarios of Economic Development in 2015-30," MPRA Paper 59735, University Library of Munich, Germany, revised 20 Oct 2014.
    13. Popov, V., 2014. "Industrial Policy - How to Choose Industries that Should Be Supported," Journal of the New Economic Association, New Economic Association, vol. 22(2), pages 186-190.
    14. Popov, Vladimir, 2014. "Сохранит Ли Экономика Узбекистана Высокие Темпы Роста? Сценарии Развития В 2015-30гг [Can Uzbekistan Economy Retain Its High Growth Rate? Scenarios Of Economic Development In 2015-30]," MPRA Paper 59785, University Library of Munich, Germany, revised 15 Oct 2014.
    15. Keun Lee & Sanika Sulochani Ramanayake, 2018. "Adding-Up Problem and Wage–Productivity Gap in Exports of Developing Countries: A Source of the Middle-Income Trap," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 30(5), pages 769-788, December.
    16. Park, Jun-ki & Ryu, Deockhyun & Lee, Keun, 2019. "What determines the economic size of a nation in the world: Determinants of a nation’s share in world GDP vs. per capita GDP," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 203-214.
    17. Joseph E. Stiglitz, 2016. "The state, the market, and development," WIDER Working Paper Series wp-2016-1, World Institute for Development Economic Research (UNU-WIDER).
    18. Sundaram, Jomo Kwame & Popov, Vladimir, 2013. "Whither Income Inequalities?," MPRA Paper 52154, University Library of Munich, Germany.
    19. Polterovich, V. & Popov, V., 2016. "Exchange Rate, Inflation and Industrial Policy," Journal of the New Economic Association, New Economic Association, vol. 29(1), pages 192-198.
    20. K. Buysse & D. Essers & E. Vincent, 2018. "Can China avoid the middle-income trap?," Economic Review, National Bank of Belgium, issue i, pages 63-78, June.

    More about this item

    Keywords

    Economic growth; economic diversification; industrial policy; exchange rate policy;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

    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:pra:mprapa:95332. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.