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- Convenors:
-
Tobias Wuttke
(Bard College Berlin)
Lindsay Whitfield (Roskilde University)
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- Formats:
- Papers Synchronous
- Stream:
- Power, learning and emotions in achieving the SDGs
- Sessions:
- Wednesday 17 June, -, -
Time zone: Europe/London
Short Abstract:
What should industrial policy look like in the 21st Century? Moving beyond a superficial distinction between ISI and EOI, this panel wants to explore how developing country governments can facilitate domestic learning for productivity in a world of vertically integrated specialization.
Long Abstract:
The 20th Century has seen a number of countries go through significant industrialisation experiences. Even though the Latin American late industrialisers fell short of their East Asian counterparts' achievements, they still recorded significant increases in manufacturing output and even in manufacturing exports, at least until the early 1980s. Import substitution and government intervention have been part of all these industrialisation experiences. ISI policies created the necessary space for domestic firms to undertake industrial production and learning. Portraying the Latin American experience as the failed ISI experience and the East Asian experience as the successful EOI experience is superficial and obscures an understanding of how learning for productivity can be facilitated. Digging deeper into these industrialisation experiences and analysing how ISI and EOI policies work together in stimulating domestic learning is necessary to design successful industrial policy for the developing countries of the 21st Century. The emergence of GVCs and vertically integrated specialization (VSI) adds complexity to the design of promising industrial policy. Papers in this panel aim to explore recent experiences of developing countries with industrial policy in manufacturing, agri-business or knowledge-based services with a focus on how governments navigate the challenges of VSI, EOI and ISI. In particular, we encourage papers that focus explicitly on government policy measures to address challenges to achieving international competitiveness, entering and upgrading in global value chains and/or increased domestic demand, the political economy of how they are designed and implemented, and national and international challenges to achieving the desired outcomes.
Accepted papers:
Session 1 Wednesday 17 June, 2020, -Tobias Wuttke (Bard College Berlin)
Paper short abstract:
This paper revisits the literature on the 20th century industrialization experiences. Taking into account the significant changes in the global economy since then, it develops a framework for industrial policy design in the 21st century - for both learning in GVCs and domestic market formation.
Paper long abstract:
This paper summarizes the literature on different industrialization experiences of the 20th century. Revisiting this literature shows that some key learnings emerge:
1. Learning and the build-up of technological and organizational capabilities in the domestic economy are the essence of economic development.
2. Large demand, both from the domestic market and from exports, creates the necessary space for learning by allowing for economies of scale and the accumulation of production experience.
3. Whether sufficient domestic demand emerges to facilitate a dynamic of domestic market formation depends on domestic purchasing power and domestic income distribution, as well as on the availability of surpluses that can be redistributed.
4. The technological and organization capabilities have usually been accessed and developed through cooperation with foreign technological leaders. Exporting compels learning.
5. Industrial policy is most successful where it nudges and supports firms to engage in technological efforts to build up these capabilities.
When applying these learnings, it is important to realize that the global economy has changed significantly since the industrialization experiences of the 20th century. We are living in a world of global value chains (GVCs) and global production networks. This allows developing country firms to access technology and to acquire technological capabilities, but falling unit prices and the so-called supplier squeeze render the returns from participating in GVCs insufficient to kick-start domestic market formation. This is why this paper proposes a framework to design industrial policy for both learning in GVCs and domestic market formation.
Jostein Hauge (University of Cambridge)
Paper short abstract:
In this paper, I present a framework for GVC-oriented industrial policy that merges the so-called GVC perspective and the so-called developmentalist perspective.
Paper long abstract:
In this paper, I present a framework for GVC-oriented industrial policy that merges the so-called GVC perspective and the so-called developmentalist perspective. The latter of the two is a perspective that industrial policy is most often analysed through, but has been somewhat neglected by the GVC perspective. I argue that the GVC perspective too quickly dismisses the relevance of industrial policy in the East Asian development experience, particularly in South Korea and Taiwan between roughly 1960 and 1990. By drawing on the industrialisation experiences of these two countries, my framework for industrial policy suggests that the GVC perspective's ideas for industrial policy would be strengthened by more clearly acknowledging the continued importance of three observations by the developmentalist perspective: 1) The need for governments in catch-up economies to bargain with foreign investors for the purpose of domestic industrialisation; 2) Policy design should not only focus on increasing exports, but also focus on replacing some imports with domestic production; 3) Linking up to the value chains of transnational corporations based in high-income countries can bring about some benefits, but ultimately, successful industrialisation necessitates a degree of competing with transnational corporations. State-owned enterprises have historically played an important role in this respect.
Michael Odijie (University College London)
Paper short abstract:
This paper will critically examine the thesis of GVC-oriented industrial policy and the growing consensus that the geographical fragmentation of today's industries is not compatible with traditional industrial policy. This is done from the perspective of Africa.
Paper long abstract:
This paper critically examines the thesis of GVC-oriented industrial policy and the view that traditional industrial policy is no longer relevant. Placing Africa at the core of GVC-oriented industrial policy reveals several problems. For example, GVC-oriented industrial policy puts African countries at a clear disadvantage due to shortcomings like weak infrastructure and a poorly trained workforcIs traditional industrial policy defunct? Evidence from the Nigerian cement industrye. Traditional industrial policy has the potential to overcome some of the above shortcomings. Furthermore, some of the main benefits of industrialization are missing from GVC-oriented industrial policy, such as linkages (e.g. infrastructural linkages and production linkages to near-by products). Using the example of industrial policy in Nigeria's cement sector, the paper will argue for the relevance of traditional industrial policy, whereby a country seeks to build a complete production chain within its borders. The paper will propose the a two-step conception of industrial policy in Africa - the building of domestic production chains to augments domestic skills and capability, fosters linkages and helps to create lead firms - before turning to GVC-oriented industrial policy.
Lindsay Whitfield (Roskilde University)
Paper short abstract:
The paper shows that hyper-competition intensifies the difficulties that low-income country governments face in using industrial policies to compel local firms to invest in learning, increasing the importance of ex post learning rents linked to foreign partnerships and of diversifying end-markets.
Paper long abstract:
The development of local manufacturing export firms remains a major challenge for Sub-Saharan African countries due to local factors as well as the high requirements and competition in global value chains. This paper argues that we need to look more closely at intra-firm capability building processes and at how and why local firms invest in building capabilities, or not, in order to understand these industrialization challenges. It presents a conceptual approach for assessing local firm capability building in new export sectors by combining the global value chain and production network approaches with the technological capabilities approach and insights from structural development economics. We apply this approach to the Ethiopian apparel export sector, which buyers considered the next big apparel sourcing location, not least due to the government's industrial policy. The paper shows that local apparel exporting firms in Ethiopia struggled to enter apparel global value chains due to their low initial capabilities, high learning costs, and low unit prices. Hyper-competition intensifies the difficulties that low-income country governments face in using industrial policies to compel local firms to invest in learning, increasing the importance of ex post learning rents linked to partnerships with foreign firms or managers and diversifying end-markets.
Antonio Andreoni (SOAS University of London) DEOGRASIAS MUSHI ole therkildsen (Danish Institute for International Studies)
Paper short abstract:
With a focus on SEZ/EPZs in Tanzania, we unpack 'the political economy of specialism' - that is, the need for recognising firms´ heterogeneity and intrinsic incentives in compliance when special fiscal rules are designed. This improves rules enforceability in adverse political settlements.
Paper long abstract:
A variety of special economic and export promotion zone regimes (SEZ/EPZs) have been widely used and celebrated for accelerating catching up, industrial agglomeration and competitiveness, especially in East Asia. Looking at these cases, governments across Africa have experimented with SEZ/EPZs to attract foreign investors (especially in manufacturing) to develop export capabilities. Unfortunately, evidence on the different forms, functions and effectiveness of these institutions across Africa remains scattered. Self-reported data from SEZ/EPZ authorities is opaque, while studies often conflate different types of SEZs and EPZs. More critically, it is often assumed that 'investors' are always attracted by the formal incentives they offer, instead of the informal rents opportunities entailed in 'special fiscal regimes'. Building on two years field research in Tanzania, we unpack what we call 'the political economy of specialism' - that is, the need for recognising firms´ heterogeneity and intrinsic incentives in compliance when special fiscal rules are designed. This improves rules enforceability in adverse political settlements. We find new evidence on the conflicting dynamics of rents allocation under Tanzania's special fiscal regime and the influence of the East African Community. We also find that the enforceability of special fiscal regimes often does not result from ex post vertical enforcement. Corruption vulnerabilities are too many along the value chain and 'production formula' type-rules run the risk of crowding out good investors. Instead we advance another approach: Selecting firms with ex ante access to foreign market. We find this to be the key for making enforceability possible.
Florian Schaefer (King's College London) Carlos Oya (SOAS University of London)
Paper short abstract:
This paper uses mixed methods to explores a key component of firm-level productivity and productive capabilities of international export-oriented firms in the Ethiopian apparel sector - the training and development of local middle-level managers by both firms and government.
Paper long abstract:
Manufacturing exports from Ethiopia have increased sharply in recent years, driven by growth in foreign direct investment. Low wages and comparatively easy access to consumer markets mean the country is attracting labour-intensive apparel manufacturing. These investments are bringing firms linked into sophisticated global production networks into a labour market with limited available manufacturing skills. Key to the further expansion of Ethiopian light manufacturing is the ability of transnational producers to profitably serve the global lead firms that control these production networks by increasing their productivity.
This paper explores a key component of firm-level productivity, the training and development of local middle-level managers. In Ethiopia, most such middle managers in FDI firms are Ethiopian nationals with limited prior manufacturing experience. Middle-level managers develop skills through a mixture of education, formal training, and informal training acquired through work experience. Developing the skills needed to adopt the basic organizational capabilities required to ensure cost-effective production to tight deadline has become a key focus of company managements. At the same time, government industrial policy is struggling to provide relevant training at scale in a rapidly changing industry. We draw on an original dataset comprising both quantitative and qualitative data collected between 2016 and 2020 to provide a detailed analysis of how firms, governments and workers struggle to develop skills and maintain competitiveness in highly hierarchical global production networks. We then compare public and private initiatives in Ethiopia to the experiences of leading apparel producing countries in Asia.
Shamel Azmeh (University of Manchester) Christopher Foster (University of Manchester)
Paper short abstract:
Nations increasingly position economic "catch-up" not only in terms of manufacturing, but also services and digital economies. We explore how industrial policy is evolving to encompass the requirements of the digital economy through analysis of policy in Brazil, Indonesia and Thailand.
Paper long abstract:
With the global expansion of the digital economies and digitalisation, we are seeing changes in the economic ambitions of latecomer economies. No longer do nations position economic "catch-up" solely in terms of manufacturing, they are also looking to grow services and establish digital economies to develop. In this context, there has been growing interest in how industrial policy evolves to encompass the requirements of the digital economy and digitalised industries.
More strategic national digital policy is emerging in latecomer economies. Such policy has been found to align with different aspects of the industrial policy literature. Interventionist policy has been important, for example to reduce structural inequalities emerging from global digital platforms. Policies pushing cross-border openness have also been crucial, to support acceleration of global technology knowledge and learning (Foster & Azmeh 2019).
In this paper, we expand on these early discussions, to more build analytical insights on the evolution of digitally focussed industrial policy. We also look to examine how more interventionist and export-orientated policy might best be sequenced. We do this through examining the contexts of digital policy activity in three latecomer economies: Brazil, Indonesia and Thailand.
Stefanie Kunkel (IASS Potsdam Digitalisation Sustainability)
Paper short abstract:
In this paper we conceptualize linkages between structural change and digitalization and draw conclusions for industrial policy making in low and middle income countries.
Paper long abstract:
It remains unclear whether or not developing countries can achieve economic prosperity through industrialization in the same manner as developed countries did. At the same time, developing countries place great hopes on digital technologies to drive structural change in the economy and create manufacturing employment. However, there remain a lot of unknowns with regards to the economic impacts of digitalization. Moreover, digitalization is rarely being discussed against the backdrop of structural change.
With regards to industrial policy making, the uncertainty surrounding both structural change and digitalization make it a difficult task for policy makers to provide adequate guidelines and design suitable policies. It becomes an even greater challenge to harmonize the different policy fields of technological and economic development. Broader societal goals related to sustainable development add to the complexity of the issue. For instance, as the prospects of industry are doubtful, new trajectories of structural change are considered and the role of services to foster economic prosperity and achieve lower-carbon development are discussed. In this paper, we aim to contribute towards a better understanding of the relationship between structural change and digitalization by conceptualizing linkages between structural change and digitalization. Our analysis should foster a dialogue on risks and opportunities of digitalization related to structural change in developing economies. It particularly addresses policy makers in order to facilitate better design and implementation of industrial policies in the face of digitalization.