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Other titles from IEA: THE INDUSTRIAL POLICY REVOLUTION I The Role of Government Beyond Ideology Edited by Joseph E. Stiglitz and Justin Yifu Lin THE INDUSTRIAL POLICY REVOLUTION II Africa in the 21st Century Edited by Joseph E. Stiglitz, Justin Yifu Lin and Ebrahim Patel THE CHINESE ECONOMY A New Transition Edited by Masahiko Aoki and Jinglian Wu INSTITUTIONS AND COMPARATIVE ECONOMIC DEVELOPMENT Edited by Franklin Allen, Masahiko Aoki, Nobuhiro Kiyotaki, Roger Gordon, Joseph E. Stiglitz and Jean-Paul Fitoussi COMPLEXITY AND INSTITUTIONS: MARKETS, NORMS AND CORPORATIONS Edited by Masahiko Aoki, Kenneth Binmore, Simon Deakin and Herbert Gintis CORPORATE SOCIAL RESPONSIBILITY AND CORPORATE GOVERNANCE The Contribution of Economic Theory and Related Disciplines Edited by Lorenzo Sacconi, Margaret Blair, R. Edward Freeman and Alessandro Vercelli IS ECONOMIC GROWTH SUSTAINABLE? Edited by Geoffrey Heal KEYNES’S GENERAL THEORY AFTER SEVENTY YEARS Edited by Robert Diman, Robert Mundell and Alessandro Vercelli CORRUPTION, DEVELOPMENT AND INSTITUTIONAL DESIGN Edited by János Kornai, László Mátyás and Gérard Roland MARKET AND SOCIALISM In the Light of the Experience of China and Vietnam Edited by János Kornai and Yingyi Quian INSTITUTIONAL CHANGE AND ECONOMIC BEHAVIOUR Edited by János Kornai, László Mátyás and Gérard Roland INTERGENERATIONAL EQUITY AND SUSTAINABILITY Edited by John E. Roemer and Kotaro Suzumura PSYCHOLOGY, RATIONALITY AND ECONOMIC BEHAVIOUR Challenging Standard Assumptions Edited by Bina Agarwal and Alessandro Vercelli MULTINATIONALS AND FOREIGN INVESTMENT IN ECONOMIC DEVELOPMENT Edited by Edward M. Graham

POST-CONFLICT ECONOMIES IN AFRICA Edited by Paul Collier and Augustin Kwasi Fosu STRUCTURAL REFORM AND MACROECONOMIC POLICY Edited by Robert M. Solow THE PAST, PRESENT AND FUTURE OF THE EUROPEAN UNION Edited by Alan V. Deardorff LATIN AMERICAN ECONOMIC CRISES Trade and Labour Edited by Enrique Bour, Daniel Heymann and Fernando Navajas ADVANCES IN MACROECONOMIC T HEORY Edited by Jacques H. Drèze EXPLAINING GROWTH A Global Research Project Edited by Gary McMahon and Lyn Squire TRADE, INVESTMENT, MIGRATION AND LABOUR MARKET ADJUSTMENT Edited by David Greenaway, Richard Upward and Katherine Wakelin INEQUALITY AROUND THE WORLD Edited by Richard B. Freeman MONETARY THEORY AND POLICY EXPERIENCE Edited by Axel Leijonhufvud MONETARY THEORY AS A BASIS FOR MONETARY POLICY Edited by Axel Leijonhufvud ECONOMIC DEVELOPMENT IN SUBSAHARAN AFRICA Proceedings of the Eleventh World Congress of the International Economic Association, Tunis Edited by Ibrahim Elbadawi and Beno Ndula

International Economics Association Series Standing Order ISBN 978–0–333–71242–9 (Hardback) 978–0–333–80330–1 (Paperback) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and one of the ISBNs quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England The Industrial Policy Revolution II Africa in the 21st Century

Edited by Joseph E. Stiglitz University Professor, Columbia University, United States of America Justin Lin Yifu Honorary Dean, National School of Development, Peking University, China and Ebrahim Patel Minister of Economic Development, South Africa © International Economic Association 2013 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2013 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-137-37450-9 ISBN 978-1-137-33523-4 (eBook) DOI 10.1057/9781137335234

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Typeset by MPS Limited, Chennai, India. Contents

List of Tables viii List of Figures x List of Boxes xiv Notes on the Contributors xv Foreword xxi Acknowledgements xxvi

Introduction: Industrial Policy in the African Context 1 Joseph Stiglitz, Justin Yifu Lin, Célestin Monga, Ebrahim Patel

Part I New Thinking on Industrial Policy 1.1 Learning and Industrial Policy: Implications for Africa 25 Bruce Greenwald and Joseph E. Stiglitz 1.2 From Flying Geese to Leading Dragons: New Opportunities and Strategies for Structural Transformation in Developing Countries 50 Justin Yifu Lin

Part II Structural Transformation: Lessons from History 2.1 Accumulation of Capabilities, Structural Change, and Macro Prices: an Evolutionary and Structuralist Roadmap 73 Mario Cimoli and Gabriel Porcile 2.2 Industrial Policy: Can Africa Do It? 114 Ha- Joon Chang

Part III New Global Order and African Reindustrialization 3.1 Winning the Jackpot: Jobs Dividends in a Multipolar World 135 Célestin Monga 3.2 Walking (Stumbling?) on Two Legs: Meeting SSA’s Industrialization Challenge 173 Raphael Kaplinsky

Part IV Macroeconomics and Governance: Creating an Enabling Environment 4.1 How Macroeconomic Policy Can Support Economic Development in Sub- Saharan African Countries 201 James Heintz

v vi Contents

4.2 Competition Policy, Industrial Policy, and Corporate Conduct 216 Simon Roberts 4.3 Political Settlements and the Design of Technology Policy 243 Mushtaq H. Khan 4.4 Infant Capitalists, Infant Industries and Infant Economies: Trade and Industrial Policies at Early Stages of Industrialization in Africa and Elsewhere 281 Akbar Noman 4.5 Industrial Policies and Contemporary Africa: The Transition from Prebendal to Developmental Governance 293 Richard Joseph

Part V Trade, Finance, and Sectoral Policies 5.1 Does Financial Market Liberalization Promote Financial Development?: Evidence from Sub- Saharan Africa 321 Hamid Rashid 5.2 Financialization as an Obstacle to Industrialization 350 C.P. Chandrasekhar 5.3 Toward a Resource-based African Industrialization Strategy 364 Paul Jourdan 5.4 The Global “Rush” for Land: Does it Provide Opportunities for African Countries? 386 Klaus Deininger 5.5 Trade Facilitation and African Industrialization in the New Global Order: An Agenda for the Textile and Apparel Industry 412 Dominique Njinkeu, Julie Lohi, and Calvin Z. Djiofack

Part VI Country Experiences and Perspectives 6.1 Industrial Structural Change, Growth Patterns, and Industrial Policy 457 Ludovico Alcorta, Nobuya Haraguchi, and Gorazd Rezonja 6.2 Industrial Policy and Economic Transformation in Africa: Strategies for Development and a Research Agenda 492 Yaw Ansu 6.3 The Premature Deindustrialization of South Africa 529 Jean Imbs 6.4 How Ethiopia Can Foster a Light Manufacturing Sector 541 Vandana Chandra Contents vii

6.5 Industrialization: The Mauritian Model 569 Streevarsen Pillay Narrainen 6.6 Sharing of Singapore’s Industrial Policy Insights 585 Thia Jang Ping

Index 590 List of Tables

1.2.1 Contribution of structural change: decomposition of labor productivity growth, unweighted averages, 1990– 2005 54 1.2.2 Global flows of foreign direct investment, 1990– 2009 (current prices and exchange rates) 57 1.2.3 The dragon in the global marketplace for low- tech products: China’s percentage share of labor- intensive exports, 1976– 2009 61 1.2.4 Comparing manufacturing in China with that in earlier geese at similar levels of development 62 2.1.1 ICT impact 91 3.1.1 Average monthly wage including benefits, by industry (US dollars) 156 3.2.1 GDP growth rates and numbers living below MDG1, 1990–2008 175 5.1.1 Dependent variable: real interest rate (%) 333 5.1.2 Dependable variable: real interest rate (%) 335 5.1.3 Dependent variable: domestic savings rate (% of GDP) 336 5.1.4 Dependent variable: gross domestic savings (% of GDP) 338 5.1.5 Dependent variable: interest rate spread 340 5.1.6 Dependent variable: interest rate spread 341 5.1.7 Dependent variable: domestic credit to private sector (% of GDP) 343 5.1.8 Dependent variable: domestic credit to private sector (% of GDP) 344 5.4.1 Land use and non−forested, non−protected agriculturally suitable area by region and key countries 395 5.4.2 Extent of large land acquisitions in selected countries, 2004–2009 400 5.4.3 Probability that a country is targeted by investors 402 5.4.4 Poisson regressions for the number of projects in bilateral investment relations 403 5.5.1 Average shares of manufactures in GDP and export for regions and selected countries 416

viii List of Tables ix

5.5.2 Regional Logistics Performance Index 424 5.5.3 Logistics performance and efficiency of customs clearance process: selected African and Asian countries 424 5.5.4 Gravity model applied on total exports (except oil) for developing countries 427 5.5.5 Gravity model applied on textile exports only for developing countries 430 5.5.6 Regional integration and trade facilitation to boost African textile exports 433 5.5.7 Increase in Africa’s textile exports under AGOA (measures in tons) 434 5.5.8 The Impacts of preferential trade agreements on developing countries’ trade 440 5.5.9 Trade within subregional customs unions and their sensitivity to the LPI 442 5.5.10 The impacts of tariffs on developing countries’ trade 444 5.5.11 Trade policies with Africa and their sensitivity to the LPI 445 6.1.1 Industries’ peak share 467 6.2.1 Economic transformation indicators (SSA, ACET-15 & COMP) 497 6.4.1 To be a modern economy, Ethiopia must industrialize 543 6.4.2 Excess local demand for light manufactures in Ethiopia 549 6.4.3 Ethiopia’s labor cost advantage over China and Vietnam 550 6.4.4 Ethiopia can compete: labor productivity in leather and garments 551 6.4.5 Ethiopia exports many domestic inputs and raw materials 552 6.4.6 Ethiopian costs as a share of China’s cost of production (%) 554 6.4.7 Comparison of trade logistics costs (US dollars) per 20 foot container 556 6.4.8 Comparison of input prices in Ethiopia, China and Vietnam (US dollars) 557 6.4.9 Ethiopia: Technical efficiency of leather shoe production 561 List of Figures

1.2.1 Industrialization as an engine of growth: manufacturing and income growth, 1993–2007 53 1.2.2 Limited structural transformation in Sub-Saharan Africa: sectoral contributions to GDP (left axis) and real GDP per capita (right axis), 1965–2005 55 1.2.3 Diverging patterns in export composition in Asia and Sub-Saharan Africa 56 1.2.4 Composition of employment in a typical group of Sub-Saharan African countries 56 1.2.5 Top five contributors to global economic growth by decade (percentage) 59 2.1.1 Supply efforts and learning 81 2.1.2 Assembling supply efforts and demand-led mechanism 85 2.1.3 Institutional space for learning and industrialization 88 2.1.4 Traverse in development process and hysteresis 94 2.1.5 RER and specialization 96 2.1.6 Productivity slowdown and destruction of technological capabilities 98 2.1.7 Productivity gap between Latin America and the United States 100 3.1.1 Unemployment, employment, and economic performance: a global picture 144 3.1.2 Distribution of primary employment in Sub-Saharan Africa (percentage) 146 3.1.3 Wage and salary workers 146 3.1.4 Population by age groups and sex (absolute numbers) 149 3.1.5 GDP based on PPP, share of world (percentage of world) 155 3.1.6 Ease of Doing Business Index, 2011 162 3.1.7 Public sector wage bill and economic development in a sample of countries 165 3.2.1 United Nations Conference on Trade and Development (UNCTAD) monthly average price index, 2000 = 100 (2000 to Jan. 2012) 176

x List of Figures xi

3.2.2 Market-driven linkages over time 185 3.2.3 Different trajectories of linkage development 190 3.2.4 The trajectory of local supply 191 4.3.1 Rents, political settlements, and policy outcomes 253 4.3.2 Effort levels and the viability of the learning process 259 4.3.3 The interdependence of variables determining effort 274 4.5.1 Growth-promoting governance 298 4.5.2 Prebendalism vs developmentalism 305 5.1.1 Per capita GDP in 1990 and 2005 327 5.1.2 Trend in financial market liberalization 328 5.1.3 State of financial market liberalization in Sub-Saharan Africa, 2005 328 5.1.4 The status of entry barriers in SSA (% of countries) in 2005 329 5.1.5 Real interest rates in different regions, 1990 and 2005 332 5.1.6 Trend in interest rate spread in SSA 339 5.1.7 Domestic savings and credit to the private sector (% of GDP) 342 5.1.8 Financial market liberalization and domestic credit to the private sector 345 5.1.3a The status of financial liberalization in SSA, South Asia, East Asia, and Latin America, 2005 347 5.1.4b Status of privatization of the financial sector in various regions (% of countries) 347 5.1.4c Practice of directed credit in various regions (% of countries) 348 5.3.1 Possible mineral rights licensing regime 369 5.3.2 Maximizing the mineral resources economic linkages 373 5.3.3 Schematic resource-based industrialisation phasing 376 5.4.1 Maximum potential value of output ($/ha) for Africa 393 5.4.2 Potential land availability vs potential for increasing yields 397 5.5.1 Share of light manufactures in merchandises exports 418 5.5.2 Share of agricultural raw material in merchandise exports 418 5.5.3 Textile exports of SSA, LAC, and USA (tons) 419 5.5.4 Textile exports Asia vs. SSA, LAC, USA (tons) 420 5.5.5 Correlation between logistics performance and exports 422 5.5.6 Correlation between railroads quality and exports 422 xii List of Figures

5.5.7 Correlation between cost of exports per container and exports 423 5.5.8 Sub-regional textile exports under AGOA 435 5.5.9 Scheme of cotton-to-clothing supply chain 438 5.5.10 Correlation between exports and the openness to multilateral rules 438 5.5.11 SSA’s textile exports to USA vs. Bangladesh and Cambodia before and during the ATC 450 6.1.1 Structural change within manufacturing at different levels of real GDP per capita (2005 US$ PPP adjusted), large countries 461 6.1.2 Share of MVA by industry in the Republic of Korea and Indonesia at US$2,000 GDP per capita (2005 US$ PPP adjusted) 462 6.1.3 Share of MVA by industry in the Republic of Korea and Indonesia at US$5,200 GDP per capita (2005 US$ PPP adjusted) 463 6.1.4 Value added, labor productivity and employment growth patterns in the food and beverage industry 469 6.1.5 Change in share of MVA by level of per capita GDP: early, middle and late industries 470 6.1.6 Early industries: growth of value added per capita, labor productivity and employment population ratio by industry 473 6.1.7 Middle industries: growth of value added per capita, labor productivity and employment population ratio by industry 475 6.1.8 Late industries: growth of value added per capita, labor productivity and employment population ratio by industry 477 6.1.9 Fast- and slow-growing early, middle and late industries 480 6.1.10 Share of MVA by industry for Egypt, Republic of Korea and large countries. 482 6.2.1a Annual GDP per capita growth 500 6.2.1b Index of GDP per capita (Constant 2000 US$) (1970=1) 500 6.2.2a Investment-Gross Fixed Capital Formation 502 6.2.2b Domestic Savings-Gross Domestic Savings 502 6.2.3a Share of manufacturing value added in GDP 504 6.2.3b Concentration of exports-percentage of Top5 exports 505 6.2.3c Manufactures plus services exports 505 List of Figures xiii

6.2.4 Growth rate of world exports share 5-years moving average 507 6.3.1 Sectoral Specialization (Herfindahl all sectors) 532 6.3.2 Sector specialization (Herfindahl) 533 6.3.3 Average sector shares 534 6.3.4 Three measures (all sectors) 536 6.3.5 Agglomeration(Sub-Samples) 537 6.4.1 In 1980, China, Vietnam and Bangladesh were as poor as Ethiopia 542 6.4.2 Trade is dominated by imports in Ethiopia, 1980–2011 549 6.5.1 The Mauritian Model 571 List of Boxes

5.5.1 Trade Facilitation 439 5.5.2 Light Manufacturing 439

xiv Notes on the Contributors

Editors

Joseph E. Stiglitz is University Professor at Columbia University. In 2001, he was awarded the Nobel Prize in economics for his analyses of markets with asymmetric information. He is currently the President of the International Economic Association (2011– 14). Justin Yifu Lin is honorary dean and professor of the National School of Development at Peking University. From 2008 to 2012, he served as Chief Economist and Senior Vice President of the World Bank. His many books include Demystifying the Chinese Economy, The Quest for Prosperity, and The New Structural Economics. He is a corresponding fellow of the British Academy and a fellow of the World Academy of Sciences for the Developing World. Ebrahim Patel is Minister of Economic Development in South Africa. He is responsible, among other matters, for competition and trade policy, infrastructure coordination, industrial funding and small business development. He has published on economic and labor policy.

Contributors

Ludovico Alcorta is Director of UNIDO’s Development Policy, Statistics and Strategic Research Branch. He has worked in academia, as a consultant for international organizations and in the private sector. He has published extensively in the areas of new technologies, innovation, industrialization and development, including in journals such as World Development, the European Journal of Development Research, Research Policy, Industry and Innovation, Structural Change and Economic Dynamics as well as in China’s Economic Research Journal. He graduated in Economics at the Universidad del Pací fico, Lima, Peru and obtained his Master and PhD at the Institute of Development Studies, University of Sussex. Yaw Ansu is the Chief Economist at the Africa Center for Economic Transformation (ACET) based in Accra, Ghana. Prior to joining ACET in 2010, he spent more than 26 years working at the World Bank in various capacities including Research Economist, Country Director, Director for Economic Policy, Head of the Economists Sector Board, and Regional Sector Director for Human Development for Africa. Yaw Ansu holds a BA in economics from Cornell University, and an MS and a Ph.D. in engineering- economic systems from Stanford University.

xv xvi Notes on the Contributors

Vandana Chandra is a Senior Economist in the World Bank’s Development Economics Prospects Group. She works on structural transformation, export diversification, and technological adaptation and innovation in developing countries. Her recent publications include Light Manufacturing in Africa: Focused Policies to Enhance Private Investment and Create Jobs (2012, co- authored), Innovation and Growth: Chasing a Moving Frontier (2010 and co- edited), and Technology, Adaptation and Exports: How Some Developing Countries Did It (2006 and co-edited). In each publication she explores how governments in developing countries can foster growth and job creation in specific industries. C. P. Chandrasekhar is Professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. His areas of interest include the role of finance and industry in development and the experience with fiscal, financial, and industrial policy reform in developing countries. Ha- Joon Chang teaches economics at the University of Cambridge. In addition to numerous journal articles and book chapters, he has published 14 authored books (four co- authored) and ten edited books. His main books include The Political Economy of Industrial Policy, Kicking Away the Ladder, Bad Samaritans, and the best- selling 23 Things They Don’t Tell You About Capitalism. By the end of 2014, his writings will have been translated and published in 34 languages and 38 countries. He is the winner of the 2003 Gunnar Myrdal Prize and the 2005 Wassily Leontief Prize.

Mario Cimoli is the Director of the Division of Production, Productivity and Management at the UN Economic Commission for Latin America and the Caribbean (ECLAC). He obtained his Ph.D. at the SPRU (University of Sussex) and is Professor of Economics at the University of Venice (Ca’ Foscari). In 2004 he was awarded the Philip Morris Chair of International Business at the Sant’Anna School of Advanced Studies (University of Pisa). He has been appointed as co- director (with Giovanni Dosi and Joseph Stiglitz) of two task- forces (Industrial Policy and Intellectual Property Rights Regimes for Development) of the Initiative for Policy Dialogue of the Columbia University (New York). He is co- chairing (with Justin Yifu, Dani Rodrik and Joseph Stiglitz) the Scientific Committee for Industrial Policy of the International Economic Association (IEA). He writes books and articles on innovation, technological change, and development, as well as science, technology and industrial issues, focusing on Latin America. Klaus Deininger is a Lead Economist in the Development Economics Research Group in the World Bank, Washington DC, USA. Calvin Djiofack is an Economist for the Economic Policy Unit of the Latin America and Caribbean Region of the World Bank. His recent publications Notes on the Contributors xvii have covered various topics, including trade in services, regional integration, migration, fiscal policy, natural resources, and CGE models. Bruce Greenwald is a Professor at the Graduate School of Business, Columbia University. Nobuya Haraguchi is an industrial research officer at the Development Policy, Statistics and Strategic Research Branch of UNIDO, conducting research on industrial structural change and drawing policy implications. He has published extensively in the areas of manufacturing development, industrial structural transformation, employment generation, and technological change. Before joining UNIDO, he taught macroeconomics at St John’s University in the United States. He holds a Ph.D. degree in development economics from the University of London. James Heintz is Research Professor at the Political Economy Research Institute of the University of Massachusetts, Amherst. His research has focused on macroeconomic and employment policies in a range of Sub- Saharan African countries, including Ghana, The Gambia, Kenya, Liberia, Madagascar, and South Africa. He has collaborated with numerous international institutions and agencies, including the International Labour Organization, the United Nations Development Program, UN- Women, the United Nations Industrial Development Organization, the Human Development Report Office, and the Economic Commission for Africa.

Jean Imbs is a professor at the Paris School of Economics (PSE), and Research Director at the Centre National de la Recherche Scientifique, which he joined in 2010. He has been a Research Fellow of the CEPR since 2006. Prior to joining PSE, he was a Professor at HEC Lausanne, and an Assistant Professor at the London Business School. He holds a Ph.D. in economics from New York University, and has taught at the University of Chicago, Princeton University, and New York University. Between 2003 and 2004, he was the Peter Kenen Fellow at Princeton University, and he has held visiting appointments at the International Monetary Fund, the World Bank, the Hong Kong Institute for Monetary Research, and the European Central Bank. His research centers around issues in international economics, and has been published in, among others, the American Economic Review, the Quarterly Journal of Economics, the Journal of Financial Economics, the Journal of Monetary Economics, and the Journal of International Economics.

Richard Joseph is John Evans Professor of International History and Politics, Northwestern University, and a non- resident Senior Fellow of The Brookings Institution. He has served as a Fellow for African Governance of The Carter Center. His publications include Radical Nationalism in Cameroon (1977) and Democracy and Prebendal Politics in Nigeria (1987). He is the editor of State, Conflict and Democracy in Africa (1999) and Smart Aid for African Development xviii Notes on the Contributors

(2009). He wrote the epilogue, “The Logic and Legacy of Prebendalism in Nigeria,” for Wale Adebanwi and Ebenezer Obadare (eds), Democracy and Prebendalism in Nigeria: Critical Interpretations (2013). Paul Jourdan is an African integrated development expert specializing in resource- based development strategies. He has wide experience working on economic growth and development in Mozambique, South Africa, Zimbabwe, the SADC, and West and East Africa. He spent 16 years in exile in Mozambique and Zimbabwe working as a geologist, geophysicist, and minerals economist, before returning to South Africa in 1991 to join the NUM. He is the past President of Mintek, the past Deputy Director- General in the DTI and the past ANC DEP Minerals & Energy Policy Coordinator. He is currently Chair of the Coega Development Corporation (CDC), on the board of the GGDA and its subsidiaries, advisor to the governments of South Africa and Mozambique on their SDI (Spatial Development Initiatives) programs and resource- based development, and was on the 2011 ANC SIMS (State Intervention in the Minerals Sector) research team. He has a BSc (in geology), a BA (in African government), a PGDip (in geophysics), an MSc (in mineral economics) and a Ph.D. (in politics). Raphael Kaplinsky is Professor of International Development at the Open University. In recent years his research has concentrated on the related themes of China’s global rise, processes of inclusion and exclusion in the global economy, the extension of global value chains, the commodities price boom, and the challenge of maximizing linkages from the resource sector to the industrial and service sectors. His future research focus will be on inclusive innovation. Mushtaq H. Khan is Professor of Economics at SOAS, University of London. He was educated at Oxford and Cambridge and previously taught at Cambridge University. He has also been visiting professor at the universities of Chulalongkorn in Thailand and Dhaka in Bangladesh. He is currently a member of the Committee of Experts on Public Administration at the United Nations. His research interests are in the areas of institutional economics, industrial policy, governance, and political economy. Julie Lohi joined the Bank as a consultant in July 2012 after graduating with a Ph.D. in economics from West Virginia University. Her main respon- sibilities include: drafting policy notes using data collected in TFF projects (for example, on transport observatory, Users Surveys, Time Release Studies (TRS)) to inform policy dialogue and for dissemination to wide audiences within and outside the Bank, particularly in TFF- eligible countries; under- taking research and policy analysis on a wide range of trade facilitation issues in countries, RECs, and along corridors covered by TFF activities. Her areas of expertise are international trade, monetary, economic development, and macroeconomics. She works with economics theories and empirical Notes on the Contributors xix economics models, and manages databases to present econometric results and derive policy implications. Célestin Monga is Senior Advisor at the World Bank where he has previously held various positions, including as Lead Economist in Europe and Central Asia, and as Manager of the Policy Review team in the Development Economics vice presidency. He also served on the Board of Directors of the Sloan School of Management’s Fellows Program at the Massachusetts Institute of Technology (MIT) and taught at Boston University and the University of Bordeaux (France). Prior to joining the World Bank, he was Department Head and Manager in the Banque Nationale de Paris group. His books have been translated into several languages and used as teaching tools by academic institutions around the world. He holds degrees from MIT, Harvard, and the universities of Paris 1 Panthéon- Sorbonne, Bordeaux and Pau.

Streevarsen P. Narrainen was Assistant Professor in economics at the University of Manitoba and the University of Sherbrooke in Canada before joining the Ministry of Finance in Mauritius as economic adviser in 1990. He later served the senior economic adviser to the Prime Minister (1998 to 2000). He is currently senior economic adviser at the Ministry of Finance.

Dominique Njinkeu is Lead Trade Facilitation Expert and Program Coordinator of the Trade Facilitation Facility (TFF). He is a member of the Bank’s Trade Practice Group of the African Region. He is also an active member of the African Economic Research Consortium (AERC), the Trade Policy Centre for Africa (TRAPCA), and the WTO Chairs Program. His work experience extends over over 25 years. He holds a MSc in Agribusiness Economics, a MSc in Statistics and Economics, and a Ph.D. in Economics from Southern Illinois University, Carbondale.

Akbar Noman is a Senior Fellow at the Initiative or Policy Dialogue (IPD) at Columbia University, where he has also been teaching at the School of International and Public Affairs. He came to IPD after several years at the World Bank. His other work experience includes being an economist at the IMF and Economic Adviser in Pakistan’s Ministry of Finance.

Thia Jang Ping joined the Economics Division of the Ministry of Trade and Industry as part of the Singapore Government Economist Service in 2001. Since 2011, he has also been the Head of the Centre of Public Economics at the Civil Service College. He received his Ph.D. in Economics from the London School of Economics in 2008. His main professional interest is in International Economics. His secondary interests include economic geography and population issues. As the Director of the Economics Division, his key responsibility is to lead the division’s efforts in economic surveillance, research, as well as economic policy analysis and evaluation. His key responsibility at the Centre of Public Economics is to advance the use of economics in the public sector. xx Notes on the Contributors

Gabriel Porcile has been an Economic Affairs Officer at ECLAC since 2011. He obtained his Ph.D. at the London School of Economics (1995) and he is Professor of the Department of Economics of the Federal University of Paraná. He is also researcher at the Brasilian Conselho Nacional de Desenvolvimento Científico e Tecnológico (National Council for Scientific and Technological Development). He has written several articles in the fields, technology, and structural change. Hamid Rashid is Senior Adviser for Macroeconomic Policy in the Department of Economic and Social Affairs (DESA) of the United Nations and leads a new UN- DESA initiative that provides development- centric macroeconomic policy advice to the member states to promote inclusive, equitable, and sustainable growth. Dr Rashid brings to DESA over twenty years of experience, working for the government of Bangladesh and also for UNDP. Dr Rashid earned his Ph.D. in Finance and Economics from Columbia University in New York, and his Bachelor of Science degree from the University of Texas. His research interest includes international finance, macroeconomic policies, financial market liberalization, and its impact on economic growth and development.

Gorazd Rezonja has been a consultant at UNIDO since 2009. During his assignment with the Development Policy, Statistics and Research Branch, he has been involved in conducting research and data analysis on industry structures, growth patterns, and market potentials in the manufacturing sectors in developed and developing countries. He graduated in Economics at the University of Maribor, Slovenia and obtained his Master degree in International Affairs at the Diplomatic Academy of Vienna, Austria. Simon Roberts is Professor of Economics and Director of the Centre for Competition, Regulation and Economic Development at the University of Johannesburg. He held the position of Chief Economist and Manager of the Policy & Research Division at the Competition Commission of South Africa from 2006 to 2012. In addition, Simon has consulted extensively on competition matters over the past 15 years and has been an expert witness in a number of major cases. He has published widely on industrial development and competition policy. Foreword

In 2012, the International Economic Association (IEA), the association of national economic associations/societies, convened a two-part series of roundtables on the theme of industrial policy. The first, “New Thinking on Industrial Policy,” was hosted by the World Bank in Washington, D.C. on May 22–3, and the second, “New Thinking on Industrial Policy: Implications for Africa,” was held in Pretoria, South Africa, on July 3–4, in partnership with the Economic Development Department of the South African government, and with the further financial support of UNIDO and the Department of Economic and Social Affairs of the United Nations. The two roundtables assembled an outstanding group of scholars to discuss the breadth of the topic of industrial policy, focusing in the second meeting on the African context. These scholars have all grappled with issues of development and growth over many years. The insights generated at the roundtable are critical in our policy debates, and are captured in this two-part IEA publication, which is the 151st volume of the International Economic Associations Proceedings of Roundtables and World Congresses. (The first part of the volume is titled “The Industrial Policy Revolution I. The Role of Government beyond Ideology.”) Taken together, the two-part volume includes more than 30 papers selected from those presented at the Washington, D.C. and Pretoria roundtables, in addition to more than 20 commentaries on those papers, written by other roundtable participants. In many cases, the papers were revised after the conclusion of the roundtable to take into consideration discussions that took place at the event. The roundtables were convened in recognition of the fact that industrial policy is a sort of lynchpin for the economics of development, that the countries that have been most successful in development have undertaken a wide variety of industrial policies, and that different countries can and should learn from these experiences. Africa provides an especially clear example of why this refreshed emphasis on industrial policy is so important, and worthy of convening international experts on the scale achieved by the IEA in 2012. The continent has one billion people: potentially a great producer and consumer base for the development of strong, dynamic manufacturing industries. It has a large and growing workforce, with a youthful population. It has significant energy resources, from traditional feedstocks such as coal and oil to renewables in the form of rivers, sun and wind. It has enormous natural resources, with a host of minerals and swathes of rich agricultural land. African growth rates have climbed in the past decade or more. Between 2000 and 2010, six of the world’s ten fastest-growing economies were to be

xxi xxii Foreword found on that continent. Yet that growth was largely fuelled by the export of raw materials to the production centers of Asia, Latin America, and Europe. The commodity price boom supported Africa’s rapid growth. Oil made a significant contribution, as did higher prices for metals and agricultural products. But domestic manufacturing, which has been central to those countries which earlier achieved sustainable growth, lagged as a contributor of growth. Yet the reality is that while Africa has many of the inputs and markets that would support the rise of a large manufacturing sector, the continent has a small industrial footprint and arguably saw a degree of deindustrialization in the commodity boom of the mid-2000s – a continuation of deindustrialization trends that have been in places since the structural adjustment programs. According to UNCTAD data, for Africa as a whole, between 2000 and 2010 manufacturing fell from 13 percent of total value added to 10 percent. The decline was steepest in sub-Saharan Africa, where manufacturing dropped from 13 percent of value added in 2000 to 9 percent in 2010. In 2010, the share of manufacturing in value added in sub-Saharan Africa (excluding South Africa) was only just over half the global norm. Meanwhile, between 2000 and 2010 raw materials climbed from 72 percent of all African exports to 78 percent, and manufactures dropped from 21 percent to 17 percent. In contrast, for the rest of the world in 2010, raw materials made up just 27 percent of exports and manufacturing some 67 percent. Manufacturing matters, and especially so because Africa has to create millions of new jobs to meet the needs of its young people and the growing pressures of urbanization. And it has to create higher-quality jobs that can raise incomes on a large scale. Manufacturing is central to any sustainable job creation effort. It creates jobs directly, generally quality employment. It generates more jobs in supplier industries, from mineral processing to services. And its labor force supports still more jobs in agriculture, retail, production of consumer goods and infrastructure. Manufacturing generally has a positive impact on foreign exchange earnings and the balance of payments, both increasing export earnings and reducing the import bill. Recent economic history has shown that it is still possible for countries to achieve substantial growth in manufacturing, becoming successful in both manufacturing goods and product innovation. Many of these successes are found in Asia, from Japan’s early lead, to Korea’s development as an industrial economy and the present-day rise of China as the factory of the world. But successes can be found on a smaller scale for specific industries on the African continent, in countries as diverse as South Africa and Tunisia. What these examples point to is the return of industrial policy as a valid focus of public policy. However, this resurgent industrial policy Foreword xxiii has learnt the lessons of both failure and successes elsewhere. It is smart industrial policy. But modern industrial policy is not just concerned with expanding the industrial sector. It is predicated on the belief that government can play a constructive role in shaping the economy – indeed, there is no choice but for it to do so. That may entail encouraging the economy to move in more environmentally sustainable ways than it otherwise would; or to create more jobs. It might seek to create an economy with less inequality, or with a stronger research and development sector, or a more productive agriculture sector. So how do societies industrialize and modernize successfully in a glo- balized world? And how do they maintain dynamic competitiveness? This two-part volume seeks to lay the basis for a discussion that will look at lessons to take industrial policy beyond the provision of subsidies alone. Every successful industrializing economy used a wider toolbox of measures, one that drew on core state functions. These include:

• Shaping infrastructure and supply chain logistics to ensure that the output of emerging manufacturing industries can move cheaply and quickly between countries and from production centers to markets. • Innovation and R&D as well as technology policies that deepen the local technological base especially by diffusing production and product innovations on a large scale. Critically, we must encourage the development and use of innovations that meet Africa’s specific needs, including in rural areas, with technologies geared to the climate, biology, and logistics challenges facing the continent. • Education, skills, and productivity policies that identify the best ways to empower millions of African workers and entrepreneurs. • Competition policies that simultaneously improve market access and act against abuse of market power, not as aims in themselves but as tools to promote employment and industrial capacity. • Trade policies that integrate markets, creating the critical mass and economies of scale, while maintaining space for new industries to emerge especially on a regional basis. • Macro-policies that ensure stability and a competitive exchange rate. • Financial policies that ensure access to finance at affordable terms, even by small and medium-sized enterprises.

Participants noted the long-standing challenge of the resource curse – that the very abundance of natural resources may inhibit the development of competitive downstream industries because entrepreneurs and governments can survive off the extraction of natural resources. But the roundtables went further to reflect on the channels of competitiveness: what countries can do in developing skills and technology policies xxiv Foreword that spur industrialization. Crucially for policymakers, the participants looked at the role of institutions, drawing on the insights gained from the experience of fast-growing industrializing economies. Washington, D.C. proved an ideal jumping-off point for the two-roundtable series. Pretoria, South Africa was a fertile and appropriate location for the Africa-focused companion roundtable. In total, the two roundtables drew 39 attendees, who participated in dozens of presentations and plenary discussions spread over different sessions, each focusing on a different aspect of industrial policy. This afforded a truly diverse and international range of perspectives, not always in agreement on the particulars, but with broadly shared common goals. Part I of this volume, edited by Justin Yifu Lin and Joseph E. Stiglitz, encompasses the Washington, D.C. roundtable. Its chapters move from the broadly theoretical to the case-study specific, reflecting the organization of the meeting, which was divided into six sessions: (1) Conceptual Issues and Principles of Industrial Policy; (2) Special Issues for Developing Countries; (3) Instruments of Industrial Policy; (4) Regional Case Studies of Successful and Unsuccessful Industrial Policies; (5) Country Case Studies of Successful and Unsuccessful Industrial Policies; and (6) Industrial Policy Redux. Part II of this volume, edited by Justin Yifu Lin, Ebrahim Patel, and Joseph E. Stiglitz, encompasses the Pretoria roundtable. The arc of the conference was similar to that in Washington, moving from the general to the particular, but focusing on how industrial policies could help transform Africa. After reviewing the results of the Washington meeting, and see- ing how these and other broad perspectives that formed the foundations of the Revolution in Industrial Policy could provide general insights for policies in Africa, the discussion centered on certain key issues facing the region: Can the “Development State” work for Africa? How does the New Global Order affect prospects for African Reindustrialization? What are the most important things for African governments to do to create a good environment for industrialization? How can financial policies be used as an instrument of industrial policy? The conference then proceeded with papers analyzing the role of industrial policies in particular sectors, and by participants sharing experiences of industrial policies (with examples from Brazil, Mauritius, Singapore, South Africa, and Africa more generally). After an Open Discussion of the Role and Opportunities for Industrial Policy in Africa and Directions for Future Research, the Roundtable concluded with a panel for (and partly by practicing) policymakers. The two volumes in this IEA Industrial Policy Roundtable series do not provide comprehensive records of all the papers that were presented at the roundtable, but hopefully they give a picture of the richness of the discussions and the potential for (and cautions in) the use of industrial policy. The editors have taken the liberty of rearranging the chapters. The whole Foreword xxv program of the roundtables may be accessed by visiting the website of the IEA: http://www.iea-world.com/roundtables.php. The convening of the conferences benefitted from the guidance of leading economists from across the world. In particular, the members of the Scientific Committee, Laura Alfaro, Mario Cimoli, Josh Lerner, Kaushik Basu, and K.Y. Amoako, deserve special mention for their work in formulating the agenda. Their wisdom, academic expertise and leadership, organizing competence and generous sharing of time made the roundtables enormously successful academic events. The IEA also owes a debt of gratitude to those who helped organize the roundtables on site in both Washington and Pretoria: Claudia Sepulveda, Julia Cunico, Nthato Minyuku and Pilar Palacios. In addition, the hard work of the administrative staff and student assis- tants at the two roundtables ensured that the roundtables’ operations ran smoothly, for which the IEA is also grateful. The IEA is grateful to Laurence Wilse-Samson for the invaluable assistance he provided as a rapporteur in Pretoria. We especially want to acknowledge the work of Eamon Kircher- Allen in both pulling the book together and in general editorial assistance. The roundtable in Washington was financially supported by the World Bank, while the Pretoria roundtable was financially supported by the World Bank, the South African Economic Development Department (EDD), the United Nations Department of Economic and Social Affairs (UNDESA), and the United Nations Industrial Development Organization (UNIDO) The IEA would like to express deep gratitude to these donors for their generous support. And finally, we are indebted to all the staff at the IEA Secretariat and Palgrave Macmillan for their great help in shepherding the volumes from conception to completion.

Joseph Stiglitz IEA President Acknowledgements

The publishers gratefully acknowledge the permission of The World Bank to reproduce material included in chapter 5.4 ‘The “Global” Rush for Land: Does it Provide Opportunities for African Countries’ by Karl Deininger. © by International Bank for Reconstruction and Development/International Development Association and The World Bank. The publishers gratefully acknowledge the permission of Penguin Books Ltd and Bloomsbury Publishing Plc to reproduce material from 23 Things They Don’t Tell You About Capitalism by Ha-Joon Chang (Penguin Books 2010, 2011). Copyright © Ha-Joon Chang, 2010.

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