INSTITUTIONAL FRAMEWORK FOR INDUSTRIAL POLICY
May 6-9, 2012Jordan, AMMAN
Dr. Ohan S. BalianBy
Outline
Introduction Rationale for industrial policy Design elements Proposed structure of framework Concluding remarks
Introduction
Diversification strategies Industrial policy defined as
government intervention in the form of support programs to the private sector
Market failures Principle Agent vs Embedded
Autonomy 13 best practice design elements
Rationale for industrial policy
Informational Failures: Government support to investors is
necessary because when entrepreneurs explore new business opportunities, they incur high discovery costs with no guarantees of success.
Coordination Failures: Governments also intervene because for
some industries to succeed, other industries must also be established simultaneously.
Design elements Embedded autonomy: Industrial policy making is embedded
within a network of linkages with the private sector without any loss of autonomy.
Generic design elements: (1) High-level government support; (2) Coordination and Deliberation Councils
within which information exchange takes place; (3) Industrial policies should have both an incentive and a conditionality structure.
Design elements (contd…)
Top 10 design principles1. Provide support only to ‘new’ activities 2. Prepare criteria/benchmarks for
success and failure3. Use built-in ‘sunset’ clauses4. Target activities, not sectors 5. Support activities that generate
spillover and demonstration effects
Design elements (contd…)
6. Choose competent implementing agencies
7. Monitor implementing agencies closely 8. Maintain channels of communication 9. Minimize the cost of ‘picking losers’ 10. Adopt programs with a capacity to
renew themselves
Proposed structure of framework
Description of existing structures Generic components: (1) Ownership; (2) Coordination Councils; (3) Carrots-and-Sticks Other components: (1) Formulation; (2) Monitoring and Evaluation; (3) Deployment
Concluding remarks
The recent turmoil in the global economy has reinforced the role of the government as an indispensable provider of support the private sector
Must be more effective in conveying policies on-the-books to policy makers on-the-ground.
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