Question

What are some common problems in implementing industrial policies?

Answer 1

Common problems in implementing industrial policies are as follows:-

i) Existing Distortion - In the real world, these economies are full of distortions, such as labor market regulation, energy subsidies etc. Correcting the market failure relating with industrial policy may not promote industrialization, it may make matters worse.

ii) Political capture - A common problem is that industrial policies are too easily captured by politically powerful groups who then manipulate it for their own purpose rather than structural transformation.

iii) Firms not sectors - Industrial policy have typically targeted sectors, but sectors dont trade firms do. Industrial policy would be more effective if it had concentreted on charecterictics rather than all firms in a sector.