Lessons from Successful East Asian Economies

Introduction

The IMF Working Paper titled "The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy" by Reda Cherif and Fuad Hasanov offers a fresh perspective. This article delves into their insights, mainly focusing on the lessons from the successful industrial policies of East Asian economies like Japan, South Korea, and Taiwan.

Rethinking Industrial Policy

Long held in scepticism by many policymakers and academics, industrial policy has often been seen as a perilous path for developing economies. However, the remarkable economic transformations in Japan, South Korea, and Taiwan tell a different story, challenging the conventional wisdom.

Key Principles for Success

Cherif and Hasanov identify three core principles that were instrumental in the success of these East Asian economies:

• (i) Support for Sophisticated Domestic Industries: Going beyond initial comparative advantages, these countries supported their domestic industries, focusing on complex and technologically advanced sectors.
• (ii) Export-oriented Growth: Emphasising exports was a pivotal element in their strategy. This drove economic growth and integrated these economies into the global market more effectively.
• (iii) Competition and Accountability: Intense market competition, coupled with robust accountability mechanisms, ensured that industrial policies were efficient and goal-oriented.

Implications for Global Economic Governance

This paper marks a significant shift in the narrative around state intervention in the economy. Historically, the IMF often recommended against such policies in its structural adjustment programs for developing countries. The success of Japan, South Korea, and Taiwan, as highlighted in this paper, presents a compelling case for reevaluating these stances.

Conclusion

The resurgence of industrial policy discussions, especially in the context of these East Asian successes, is vital in today's global economic landscape. The paper by Cherif and Hasanov is not just an academic exercise but a call to reconsider long-held beliefs about economic development and state roles in emerging economies.

Further Reading

I recommend reading the full IMF Working Paper by Cherif and Hasanov for a detailed understanding of this topic. It offers a comprehensive analysis and a well-articulated argument for revisiting industrial policy in the context of modern global economics. You can download this article for free on the IMF website using the following link:: https://tinyurl.com/2pydd9sh