Industrial Policy in Low and Lower Middle Income Countries

Bonn - venue of the conference on industrial policies in developping countries

Globalization exerts pressure on nation states to adapt their economic structures and increase the competitiveness of their main economic activities. The ability to take advan-tage of globalization depends on entrepreneurs, but – given the pervasiveness of market failures – also on industrial policies adopted by governments and complementary activi-ties by non-state actors such as business associations. 

Especially in times of financial and economic crisis, discussion centres on the role of state intervention in absorbing eco-nomic downturn in the short term while stabilizing economic growth in the long term. Industrial policy may play a major role in coping with these challenges. 

Low and lower-middle income countries, including Vietnam, face a number of conditions that set them clearly apart from already industrialized or rapidly industrializing countries. Typical specifics include low levels of diversification in the private sector; lack of competi-tiveness especially in knowledge-intensive industries with high value added; large shares of the work force in non-registered economic activities; inefficient production facilities and considerable productivity gaps, both within the domestic economy and vis-à-vis in-dustrialized countries. Industrial policy in countries with large shares of poor and vulner-able population faces particular challenges as it needs to be especially careful about minimising the hardship that is involved in any process of modernization that drives less efficient producers out of business (“creative destruction”). Poverty impact assessments should therefore be part and parcel of any industrial development. Priority should be given to supporting strategies that provide opportunities for poor and less educated groups of society; of course, sophisticated new activities with high entry barriers may also warrant public support, if they create externalities that benefit the poor indirectly and/or in the long-term (e.g. via raising taxes, earning foreign exchange, technological learning etc.). Furthermore, development strategies nowadays should explore patterns of industrial development that are environmentally sustainable. Climate change and its con-sequences pose further binding constraints on the development of industrial structures in developing countries as they need to be adapted to upcoming challenges. Hence indus-trial policies for this group of countries need to be substantially different from those pur-sued in rich and diversified economies. 

A research project on industrial policy in low and lower middle income countries is being implemented by the German Development Institute / Deutsches Institut für Entwick-lungspolitik (DIE). DIE closely cooperates with GTZ and other development agencies in order to ensure continuous feedback between reseach and policy formulation and imple-mentation. The study comprises field studies in nine countries: Cambodia, Egypt, Ethio-pia, Mozambique, Namibia, Nigeria, Syrian Arab Republic, Tunisia and Vietnam. 

At the request of DIE, Economica Vietnam has contributed to the country study in Vietnam by providing a local perspective and insights to the study, acted as a peer commentator and provided inputs at an international conference on industrial policies in low and lower-middle income countries which took place in on 18 – 19, November 2009 in Bonn, Germany. Please click here to get updated above the study and the event.