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Industrial policy in developing countries: failing markets, weak states

Decarbonisation, new technologies, and massive urbanization: the most important challenges of our time demand new forms of industrial policy. This is particularly challenging for developing countries. In addition to higher productivity and wider diversification, smart industrial policy must now also provide solutions for carbon-free economies as well as for inclusive societies in the digital era where computers and robots are increasingly replacing human labour. DIE current column "Smart industrial policy is the key" provides insights on how such national transformation projects can be successfully implemented.

For Tilman Altenburg, head of the department "Sustainable Economic and Social Development" at the DIE, industrial policy is particularly relevant in developing countries where market failure is pervasive. Here, governments have an important role in encouraging and coordinating investments to diversify and upgrade the economies - but, unfortunately, these are mostly also the countries where finance and capabilities are lacking and clientelism is most likely to distort policy outcomes.

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In their book "Industrial Policy in Developing Countries", which has now also been published as a paperback, Altenburg and his co-author Wilfried Lütkenhorst explore how structural change can be advanced even in adverse policy environments. Based on case studies from Ethiopia, Mozambique, Namibia, Tunisia and Vietnam, the book provides an accurate insight into contemporary industrial policy in developing countries.

About the book - Dani Rodrik, Harvard University: "Countries that need industrial policy the most typically have the worst governance. This terrific book explicitly recognizes this difficulty, and provides a rich discussion of how it can be overcome. It presents a valuable
series of country studies that focus on both successes (such as Ethiopian cut flowers) and failures (such as Namibia’s export processing zones). The authors show that weak capacity is not necessarily a hindrance to effective industrial policy, just as strong capacity does not guarantee it."

The German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) in brief:

The DIE is one of the leading research institutions for development policy world-wide. It is based in the UN City of Bonn. DIE builds bridges between theory and practice and works within international research networks. The key to DIE’s success is its institutional independence, which is guaranteed by the Institute’s founding statute. Since its founding in 1964, DIE has based its work on the interplay between Research, Consulting and Training. These three areas complement each other and are the factors responsible for the Institute’s distinctive profile.
Every Monday, the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) comments the latest news and trends of development policy in The Current Column. The German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) is headed by Prof. Dr. Dirk Messner (Director) and Dr. Imme Scholz (Deputy Director)..