What evidence is there that industrial policies were a major influence on East Asian success?

Question

What will be an ideal response?

Answer 1

There is no clear answer to this question. One camp is represented by the World Bank's research. In its view, some government interventions fostered economic growth (export promotion and directed credit), but in general industrial policies did not. The World Bank's analysis rests on two pieces of evidence. First, it compares the growth rates of productivity in the targeted and nontargeted sectors in the three countries with sufficient data (Japan, Korea, and Taiwan). In general, it finds that productivity change in the promoted sectors was high but no higher than in the rest of the economy. Second, it examines the change over time in the industrial structure of the countries. If industrial policies worked, they should have led to a different pattern of industrial growth than the pattern caused by a change in factor endowments. The World Bank concluded that industrial policies were at most marginally effective, because the sector-by-sector growth pattern is as expected, given the national endowments of labor and the high savings and investment rates.
Critiques of the World Bank's findings usually rest on two points. First, the fact that productivity growth was generally no faster in promoted sectors is irrelevant, according to the critics. The important issue is what the growth rates would have been without promotion. It is conceivable that without industrial policies, growth in the targeted industries would have been much slower than with the policies. Second, the critics point out that the World Bank analysis is overly general. In their view, it is based on industry groupings that are too broad to uncover the details of selective targeting.