Rethinking Industrial Policy
This chapter presents a discussion on industrial policy by Philippe Aghion, Robert C. Waggoner Professor of Economics at Harvard University. The discussion is organized as follows. Section 2 summarizes the infant-industry argument as it has been clearly stated in particular by Stiglitz, and then it discusses recent empirical work that partly refutes, partly supports this argument. Section 3 develops a first argument in favor of a “new industrial policy” in developed economies, which is based on the idea that innovation activities in a pure laissez-faire economy may go in the wrong direction. Section 4 develops a second argument, which, like the initial infant-industry argument, emphasizes the existence of cross-sectoral learning spillovers, but it proposes a different strategy to test for such spillovers. Section 5 concludes by mentioning two more arguments in favor of a new industrial policy. First, sectoral policy may help foster competition and thereby also innovation. Second, growth and innovation in credit-constrained sectors benefit from countercyclical government support.
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