2020 Conference on Firms, Trade and Development - Panel Discussion | Summary and Q&A

TL;DR

Historical import substitution policies led to mixed results, but the future of industrialization in developing countries is bleak.

Key Insights

• 🥺 Import substitution policies in developing countries had mixed results, leading to a decline in interest by the 1960s due to their negative effects.
• 🛀 Investment promotion, focusing on attracting foreign investment, has shown positive outcomes in terms of FDI inflows, export upgrading, and innovation stimulation.
• 🪡 Traditional industrial policies need to adapt to current challenges, such as the decline of manufacturing and the need for collaborative and iterative learning processes.
• 😌 The future of industrial policy lies in promoting productivity in domestic firms, particularly in non-traditional sectors, through public-private collaboration and learning.

Transcript

uh let's go ahead and get started it's it's uh uh it's time for the for the panel we're we're very happy to have this panel on Industrial policy in developing countries and to have a very distinguished um set of speakers Doug Irwin um from Dartmouth bata bata York um and Danny rodri we're going to um just have them rather than what we're just doing... Read More

Questions & Answers

Q: Why did import substitution policies fall out of favor?

Economists identified various problems with import substitution, including excessive protection, inefficiency in domestic manufacturing, and detrimental effects on non-traditional exports and economic development.

Q: Can investment promotion be an effective alternative to import substitution?

Investment promotion, which focuses on attracting foreign direct investment, has shown positive results in terms of increasing foreign investment, upgrading exports, and stimulating innovation. It is a cost-effective approach compared to import substitution.

Q: How can industrial policy take into account the political and competitive landscape in developing countries?

Industrial policy needs to be flexible and adaptive, incorporating public-private collaboration and learning. It should not favor national champions or incumbents, and policies should be transparent and open to newcomers.

Q: Is there a role for infant firms in the future of industrial policy?

In the current economic landscape, promoting the productivity of infant firms, particularly in services and non-traditional agriculture, can be an effective approach to productive development. This approach promotes collaboration, learning, and adaptation rather than protectionism or subsidies.

Summary & Key Takeaways

• Import substitution policies, known as import controls and protectionism, were popular in the mid-20th century as a means of promoting industrialization in developing countries.

• Early proponents of import substitution, such as Raul Prebisch, believed that it would save foreign exchange, encourage industrialization, and promote economic development.

• However, by the 1960s, many economists began to criticize import substitution policies due to their negative effects, such as inefficient domestic manufacturing, reliance on imports, and low export earnings.