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Is There Still A Role for Direct Government Support to Firms in Developing Countries?

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  • Mckenzie,David J.

Abstract

Should governments in developing countries directly support firms with policies such as grants, subsidized loans, and training and consulting programs, or should they instead just aim to enact sensible regulatory and macroeconomic policies and not attempt to engage in industrial policy While industrial policy has gained renewed attention in developed economies, it faces considerable skepticism in developing countries scarred by previous experiences and facing limited fiscal space. This paper discusses the rationale for government involvement, and then lessons from a recent research agenda in development economics on how to target these programs, on whether they induce firms to undertake additional activities, on avoiding political capture, and on how these interact with competition. This work shows that these policies can deliver some of their promised benefits, but that there is still much to learn and the need for systematic and serious attempts at prospective impact evaluation as new policies are launched.

Suggested Citation

  • Mckenzie,David J., 2023. "Is There Still A Role for Direct Government Support to Firms in Developing Countries?," Policy Research Working Paper Series 10628, The World Bank.
  • Handle: RePEc:wbk:wbrwps:10628
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    References listed on IDEAS

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    1. Eliana Carranza & David McKenzie, 2024. "Job Training and Job Search Assistance Policies in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 38(1), pages 221-244, Winter.
    2. David McKenzie & Susana Puerto, 2021. "Growing Markets through Business Training for Female Entrepreneurs: A Market-Level Randomized Experiment in Kenya," American Economic Journal: Applied Economics, American Economic Association, vol. 13(2), pages 297-332, April.
    3. Campos, Francisco & Coville, Aidan & Fernandes, Ana M. & Goldstein, Markus & McKenzie, David, 2014. "Learning from the experiments that never happened: Lessons from trying to conduct randomized evaluations of matching grant programs in Africa," Journal of the Japanese and International Economies, Elsevier, vol. 33(C), pages 4-24.
    4. Nicola Bianchi & Michela Giorcelli, 2022. "The Dynamics and Spillovers of Management Interventions: Evidence from the Training within Industry Program," Journal of Political Economy, University of Chicago Press, vol. 130(6), pages 1630-1675.
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