The classic example is Korea, where industrial policy has persistently focused on enhancing technological capabilities and on creating new sectors, sequentially targeting sectors with higher technological intensity. A similar story can be told about Finland, where post-war industrialization based on heavy public investments and corporate arrangements (between the government, unions and private firms) left room in the 1990s for an industrial policy based on the evolutionary concept of National Innovations Systems, which sought to create a favorable environment for R&D. Inversely, in most Latin American countries, industrial policy was abandoned in the 1980s; and only in the 2000s did it slowly come back (Peres, 2011). The rather slow return of industrial policy, combined with the commodity boom and the tendency of the real exchange rate to appreciate, have compromised diversification in Latin America.
As a result, divergent trends in structural change emerged in Latin America as opposed to Korea and Finland. A simple, albeit useful, indicator of the intensity of structural change is the evolution of the Index of Relative Participation (IRP), defined as the country’s share of the engineering industries in total manufacturing value added, as compared with the same share in the United States. Such an index gives an idea of whether a country succeeds in approaching the production structure of a benchmark country which is already on (or close to) the international technological frontier.
The dynamism of the path of structural change and growth is related to the existence and quality of industrial policy. Not all industrial policies are equally successful, but there is no success without industrial policy.
- Aiginger, Karl and Sieber, S. (2005) “Towards a Renewed Industrial Policy in Europe”, e Background Report of the Competitiveness of European Manufacturing, European Commission, DG Enterprise .
- Peres, W. 2010. “The (slow) Return of Industrial Policies in Latin America and the Caribbean”, in M. Cimoli, G. Dosi and J.E. Stiglitz (eds.): The political economy of capabilities accumulation: The past and future of policies for industrial development (New York, Oxford University Press).