Industrial Policy, Learning, and Development

Abstract: Industrial policies have played an important role in successful development. Through these policies, governments intervene in the market’s sectoral allocation of resources and choice of technologies. Earlier industrial policies had a narrow remit and made use of a limited number of instruments. This paper argues that they should pursue broader objectives with a wider range of instruments. In particular, it argues that ‘learning’ is central to development, there are intrinsic market failures associated with learning, and that carefully crafted industrial policies can promote learning and development.

Keywords: industrial policies, learning, learning-by-doing, technological progress, Washington Consensus

Acknowledgements: This paper is based on joint work with Bruce Greenwald. Research and editorial assistance from Debarati Ghosh, Poorya Kabir, and Eamon Kircher-Allen, is gratefully acknowledged.