Abstract
Europe has a long tradition in activist industrial policies aimed at identifying and at stimulating industrial sectors and firms which are deemed to be important by policy makers. The instruments used in these industrial targeting programs are vast. Credit policies, subsidies of all kind, protection from outside competitors, procurement policies, nationalizations of ‘strategic’ industries have been used to create and sustain ‘national champions’.
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Notes
For some evidence see H. Ergas, Does Technology Policy Matter?, CEPS Papers, Centre for European Policy Studies, Brussels, 1986.
E. Helpman and P. Krugman, Market Structure and Foreign Trade, MIT Press, 1985.
The argument was developed and formalized by J.A. Brander and B.J. Spencer, ‘Export Subsidies and International Market Share Rivalry’, Journal of International Economics, 1984. See also chapter 2 in Strategic Trade Policy and the New International Economics, P. Krugman, ed., MIT, 1986.
P. Krugman, ‘Import Protection as Export Promotion’, in H. Kierzkowski, ed., Monopolistic Competition and International Trade, Oxford University Press, 1984.
See J. Eaton and G. Grossman, ‘Optimal Trade and Industrial Policy under Oligopoly’, NBER Working Paper, No. 1236, 1983.
A. Dixit and G. Grossman, ‘Targeted Export Promotion with Several Oligopolistic Industries’, Woodrow Wilson School Discussion Papers in Economics, No. 71, Princeton University, 1984.
There is some dispute about this success, however. See P. Krugman, ‘Targeted Industrial Policies: Theory and Empirical Evidence’, in: Federal Reserve Bank of Kansas City, Industrial Change and Public Policy, 1983.
See also H. Patrick and H. Rosovsky, eds, Asia’s New Giant, Brookings Institution, Washington, D.C., 1976. There is, however, very little dispute over the fact that Japanese institutions like MITI have found it much more difficult to follow successful policies of industrial targeting during the 1970s and 1980s than during the previous two decades.
See K. Yamamura, ‘Caveat Emptor: The Industrial Policy of Japan’ in P. Krugman, ed., Strategic Trade Policy and the New International Economics, MIT Press, 1986.
These problems of X-inefficiency are also observed in sectors which enjoy import protection. It has been observed, for example, in the US steel industry. Protection has allowed US steelworkers to raise domestic wages faster than in the rest of the US industrial sector. See C. Lawrence and R. Lawrence, ‘Manufacturing Wage Dispersion, An End Game Interpretation’, Brookings Papers on Economic Activity, No. 1, 1985.
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© 1993 G. A. Collenteur and C. J. Jepma
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de Grauwe, P. (1993). Industrial Policies and Political Democracy. In: Collenteur, G.A., Jepma, C.J. (eds) Economic Decision-Making in a Changing World. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-11144-2_8
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DOI: https://doi.org/10.1007/978-1-349-11144-2_8
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