Week 7.2 - Industrialisation and Trade Flashcards
What is selective industrial policy?
It deliberately favors specific industries or firms against market signals to enhance efficiency, promote productivity growth, and manage industrial decline
What are the key tools of industrial policy?
Tariff protection, subsidies, public investment, government support, public-private partnerships, and even coercive measures
Why did industrial policy become marginalized?
The rise of neoliberalism reduced state intervention in favor of free-market policies
Why has industrial policy re-emerged?
Shifts in trade norms and the 2008 Financial Crisis renewed interest in active industrial policy
Why is manufacturing essential for economic development?
No country has achieved high-income status without industrialization and structural transformation
What drives industrial dynamics and innovation?
“Learning in production” fosters technological advancements and efficiency improvements
How should industrial policy evolve beyond traditional manufacturing?
It should include broader sectors and account for technological and economic shifts
What defines manufacturing?
The use of mechanization and chemical processes to produce goods
Why does agriculture have limited productivity growth?
It is constrained by natural factors like soil, climate, and seasonal variations
How does service sector productivity growth differ from manufacturing?
Service productivity often increases by shifting costs to consumers, e.g., self-checkouts
Why is manufacturing a strong driver of productivity growth?
It enables faster productivity improvements compared to agriculture and services
How does manufacturing contribute to other sectors?
It diffuses technologies, improves efficiency, and introduces organizational innovations
Why can relying on primary commodities be problematic?
They suffer from declining terms of trade, making industrial diversification crucial
What is manufacturing’s role in the formal economy?
It provides stable jobs, higher wages, and structured economic development
How does agriculture complement industrialization?
Through technological applications, skills transfer, and infrastructure development
What role does agriculture play in financing industrialization?
Agricultural exports provide capital for industrial investments
How does rural labor contribute to industrial growth?
Educated workers from rural areas transition to manufacturing jobs
Which country successfully integrated agriculture with industrialization?
Malaysia is a notable example of balancing agricultural and industrial growth
What do critics of industrial policy argue?
State intervention distorts markets, misallocates capital, and fosters rent-seeking
What is the “anti-interventionist” argument regarding Japan and South Korea?
Some argue they would have grown even faster with less state intervention
What do proponents of industrial policy argue?
Industrialization is not spontaneous; state intervention has historically played a key role
What is meant by “embedded autonomy” in industrial policy?
A balance where the state supports industries while avoiding excessive interference
How does industrial policy address market failures?
It corrects inefficiencies in capital allocation and promotes strategic sectors
What is the role of FDI in industrial policy?
FDI should be aligned with industrial policy objectives, not replace them
What examples support industrial policy’s effectiveness?
The US IT sector, European Airbus, Nokia, and Japan’s auto industry
Why is technology acquisition crucial in industrial policy?
Mastery and innovation take time and require strategic state support
What are productive capabilities?
They determine what an economy can produce based on its factors of production
How can productive capabilities be improved?
By developing infrastructure, skills, and technology to better utilize endowments
How do productive capabilities relate to the infant industry argument?
Industries need time to grow, reach economies of scale, and improve productivity through experience
What role does government play in supporting infant industries?
Governments create space for industries to “grow up” by providing protection, investment incentives, and policy support
What is a key challenge to implementing industrial policy today?
Many argue that there is little policy space due to global trade rules, but some leeway still exists
Can tariffs still be used for industrial policy?
Yes, as long as they are within WTO-bound limits
How do WTO rules affect industrial policy?
They restrict direct protectionist measures but leave room for indirect strategies
How can industrial policy promote infrastructure and skills?
Through targeted investments in key industries and education
What role can government banks or sovereign wealth funds play?
They can provide loans or equity investments to encourage strategic mergers
How can tax incentives support industrial development?
Corporate tax exemptions, accelerated depreciation, and investment allowances can encourage strategic investments
How can government-funded R&D support industrial policy?
It can help transfer technology to priority sectors at a lower cost
How can industry-university collaborations aid industrial policy?
Governments can direct research funding towards industries with strategic potential
Why exempt SMEs from anti-trust laws?
To enable collaboration in R&D and export market development
How can government procurement support industrial policy?
By prioritizing domestic firms and strategic sectors in public contracts
What role can state-owned enterprises (SOEs) play?
They can enter sectors where the private sector is unwilling to invest
Why is worker training important in industrial policy?
It overcomes firms’ reluctance to invest in workforce skills
How can export taxes be used strategically?
To encourage domestic processing of raw materials rather than exporting them unprocessed
Can countries still raise tariffs under WTO rules?
Yes, but only up to their bound tariff limits
What is NAMA, and why does it matter for industrial policy?
Non-Agriculture Market Access (NAMA) negotiations could restrict tariff flexibility, but they have stalled
Can countries renegotiate bound tariffs?
Yes, but it is costly and requires compensation to other WTO members
What does GATT Article XVIII allow for developing economies?
It provides some flexibility for industrial policy under economic development provisions
What role do Balance of Payments (BOP) provisions play in industrial policy?
Countries can impose quantitative restrictions on imports under BOP grounds
Are all subsidies prohibited under WTO rules?
No, non-export subsidies for R&D, regional development, and environmental goals are permitted
Can Least Developed Countries (LDCs) use export subsidies?
Yes, LDCs and some developing countries have more flexibility in using them
What protections exist for FDI under WTO rules?
The Trade-Related Investment Measures (TRIMS) agreement protects foreign investors but allows joint venture requirements and technology transfer mandates
Can governments still invest in local production?
Yes, as long as it does not involve direct export subsidies
Why look beyond the WTO when assessing policy space?
Bilateral and regional trade agreements increasingly shape global trade restrictions
How do BTAs and RTAs affect industrial policy?
They often impose stricter rules than the WTO, further limiting policy options
What does Shadlen argue about policy space under the WTO?
He acknowledges some remaining space but warns that BTAs and RTAs reduce it further
How have right-wing populists influenced global trade agreements?
Leaders like Trump have promoted even more asymmetrical trade relations than the neoliberal WTO
How can the state reduce economic uncertainty?
By ensuring demand through protectionist measures, limiting competition, and prioritizing domestic firms in government contracts
How can the state encourage innovation?
By leading in technological development, supporting research consortia, and subsidizing R&D
What role does the state play in setting technological standards?
It can impose regulations that push industries toward technological evolution
Why should the state provide technological public goods?
To ensure widespread access to innovation and maintain global competitiveness
Why is there a call for a pragmatic approach to industrial policy?
Industrial policy needs to be flexible and adaptive to changing economic conditions
Why should industrial policy target inequality and job precarity?
Because economic growth alone does not guarantee equitable job creation
What global challenges necessitate new approaches to industrial policy?
Climate change, automation, and shifting global trade patterns
How does industrial policy need to adapt to changing power dynamics and the climate crisis?
By integrating environmental sustainability and resilience into economic strategies
Why should industrial policy link economic upgrading to social outcomes?
To ensure that economic growth translates into improved social conditions and well-being
What are horizontal industrial policies?
Policies that apply to all firms, such as R&D tax credits
What are vertical industrial policies?
Policies that favor specific sectors or firms, such as targeted renewable energy subsidies
How do supply-side policies work in industrial policy?
They lower production or R&D costs through grants, subsidies, and tax credits
What are demand-side policies in industrial policy?
Policies that increase market size, such as tax credits for purchasing electric vehicles
Why should industrial policy focus on ‘good-jobs externalities’?
Because economic policies should not just increase output but also improve job quality
What was the traditional focus of industrial policy?
Manufacturing, export competitiveness, and top-down policy instruments
How should industrial policy evolve to support good jobs?
By broadening into services, supporting SMEs, and adopting a collaborative approach
Why does Rodrik say, “Good jobs require good firms”?
Because improving job quality depends on strengthening firms’ capabilities and growth
What was Ethiopia’s GDP growth between 2003-2014?
An average of 11% per year
What was the impact of Ethiopia’s Growth and Transformation Plan (2011-2014)?
Manufacturing grew at an average of 20% annually
How did Ethiopia’s life expectancy change between 1992 and 2013?
It increased from 48 to 63 years
How was Ethiopia’s cement industry successful?
Through import substitution and strong state-private sector cooperation
Why was Ethiopia’s floriculture sector a success?
It became a major export-oriented agro-manufacturing industry with both foreign and domestic investment
Why did Ethiopia’s leather industry struggle despite its endowments?
Growth was sluggish due to industry challenges, but it is improving
What is a global value chain (GVC)?
The full range of activities needed to bring a product from conception to final disposal
How has globalization affected production processes?
It has led to fragmented production across multiple countries, creating international supply chains
Who developed the GVC framework, and why?
An interdisciplinary and international research group to track industry globalization and its impacts
What does GVC analysis provide?
Conceptual and methodological tools to study global trade, production, and development
What are the two main approaches to GVC analysis?
Top-down is focus on lead firms and inter-firm networks.
Bottom-up is focus on countries and regions’ economic and social upgrading or downgrading
What happens when different stages of production take place in different countries?
The supply chain becomes global, forming a Global Value Chain (GVC)
How can countries participate in GVCs?
Through backward participation (buying inputs from GVC firms) or forward participation (selling inputs to GVC firms)
How has outsourcing affected sectoral boundaries?
It has blurred them, making traditional industry classifications less relevant
What new challenges arise in global production networks?
“Friend-shoring” (favoring politically aligned partners) and industry-specific trade alliances
What are the four types of economic upgrading?
Process upgrading (improving production methods)
Product upgrading (higher-value goods)
Functional upgrading (moving to higher-value tasks)
Chain upgrading (shifting to more profitable sectors)
What does social upgrading involve, according to the ILO?
Better work access, improved working conditions, stronger labor rights, and social protection
What does Kaplinsky argue about economic rents in GVCs?
Developed countries capture most rents, maintaining control over innovation
What is meant by “governance of the chain” in GVCs?
Developed countries organize labor division and influence upgrading capacity
Why is systemic efficiency important in GVCs?
To enhance competitiveness across the value chain
What does Kaplinsky conclude about competition in GVCs?
Where barriers to entry are low, competition increases, leading to worse outcomes
How do intellectual property and branding create economic rents?
Ownership of patents, design rights, and branding generates high profits (e.g. furniture design vs manufacturing)
What key questions should be asked in GVC analysis?
Where are rents generated?
Where is value added?
How can countries move up the chain?
How do GVCs expose countries to new economic benefits?
Through increased trade, foreign direct investment (FDI), and technology spillovers
How does GVC participation improve national productivity?
By giving firms access to larger markets, pushing them to upgrade capabilities
How does GVC participation impact a country’s reputation?
It enhances credibility, making it easier to establish new business relationships
What impact do GVCs have on female employment?
They create new job opportunities, reducing women’s economic dependency
Why does GVC participation create an urgency to upgrade skills?
To remain competitive as global supply chains evolve
How can GVCs trap developing countries?
By keeping them stuck in low-value-added activities
Why are developing economies vulnerable in GVCs?
Demand and supply fluctuations can severely impact their industries
Why does GVC mobility create risks?
Firms can easily relocate if production, transport, or communication costs change
How does GVC participation create fiscal risks for governments?
It can lead to investment declines and revenue losses when firms relocate
What is the “race to the bottom” in GVCs?
Countries may lower labor and environmental standards to attract foreign investment
How does GVC participation increase informal work?
It leads to outsourcing and precarious employment, making it harder to enforce labor rights
Why is skill upgrading urgent for developing economies in GVCs?
To avoid stagnation in low-skilled, low-wage sectors
How can governments support companies and trade unions in GVCs?
By helping them recognize opportunities and risks in global supply chains
How can governments assist local producers in entering GVCs?
By providing financial support, infrastructure, and training programs
How can industrial policy help firms move up the value chain?
By improving design capabilities, negotiating trade deals, and enhancing infrastructure
What kinds of investments can governments make to support GVC participation?
Transport, energy, ICT, worker training, and financial intermediation
What key tension exists in industrial policy today?
Balancing local economic needs with global trade rules
Why must developing countries negotiate policy flexibility?
To retain space for industrial policy within multilateral and regional agreements
How can industrial policy be adapted to fragmented global trade systems?
By developing strategies that work around restrictions while maximizing national benefits
Why must industrial policy target good jobs and worker-friendly technologies?
To ensure that economic growth leads to equitable employment and sustainable development
Why should policymakers look beyond traditional “developmental states”?
Other models, such as Sweden and Finland, offer innovative industrial strategies
How should industrial policy align with environmental sustainability?
By incorporating green technologies and low-carbon industries
Why does agricultural development require industrial policy?
Because modernizing agriculture relies on industrial inputs like machinery, fertilizers, and logistics
Why does industrial policy involve risk-taking?
Successful policies require experimentation, and some initiatives may fail before succeeding
What will remain a challenge for industrial policy in the future?
The persistence of mismanaged states and governance failures
Does economic upgrading always lead to social upgrading?
No, firms can improve productivity and profitability without improving worker conditions
What are common problems faced by workers in global value chains?
Insecure employment, poor working conditions, and lack of worker protections
What role do lead firms play in Global Production Networks (GPNs)?
They dominate production chains and set conditions for suppliers
What countries have seen major production expansion in GPNs?
China, India, and Brazil have experienced significant growth
What are the opportunities from GPN participation?
Economic upgrading, access to larger markets, and technology transfer
What are the challenges of working in GPNs?
High commercial pressures, strict quality standards, and buyer-driven demands
How has employment changed due to GPNs?
Increased jobs in manufacturing, agriculture, and services, but with growing insecurity
How have GPNs impacted women and migrant workers?
They have gained more wage employment but often in low-paid and insecure jobs
What is economic upgrading?
Moving to higher-value activities that enhance technology, skills, and profitability
What is process upgrading?
Improving production efficiency, often reducing the need for unskilled labor
What is product upgrading?
Producing higher-quality or more advanced goods, requiring skilled workers
What is functional upgrading?
Expanding into higher-value activities like branding, logistics, and R&D
What is chain upgrading?
Shifting to more advanced industries or markets
What is social upgrading?
Improving workers’ rights, job quality, and working conditions
What measurable standards define social upgrading?
Wages, working hours, employment type, and social protections
What enabling rights support social upgrading?
Freedom of association, collective bargaining, anti-discrimination, and worker voice
Why doesn’t economic upgrading always lead to social upgrading?
Firms can increase profits while maintaining poor working conditions
What example highlights this disconnect?
Foxconn in China achieved economic success but faced severe worker exploitation
What determines a firm’s access to upgrading opportunities?
Its position within the value chain
How does worker status impact social upgrading?
Regular workers (permanent jobs) have better wages and protections than irregular workers (casual contracts, low pay)
How do labor contractors affect social upgrading?
They provide jobs but often exploit workers through insecure contracts
What are the characteristics of small-scale home-based work?
High vulnerability, lack of contracts, and low-value capture
What are the challenges in low-skilled, labor-intensive jobs?
High job numbers but low wages, job insecurity, and poor conditions
What is medium-skilled, mixed-technology work like?
More stable jobs but under pressure from global buyers
What defines high-skilled, technology-intensive work?
Fewer jobs but higher pay and job security
What are the advantages of knowledge-intensive jobs?
High wages, stability, and career opportunities but require advanced education
How can economic upgrading lead to social downgrading?
By increasing job insecurity and labor exploitation despite business growth
What are different firm strategies in economic upgrading?
High-road (invest in skills, wages, and security)
Low-road (cut costs, exploit cheap labor), and mixed (combine skilled and casual workers)
What did the Moroccan garment industry case study show?
Skilled workers benefited from economic upgrading, but irregular workers were excluded
What is small-scale worker upgrading?
Home-based workers improve conditions through fair trade and producer organizations
How does labor-intensive upgrading occur?
Workers transition from farming to factory jobs with better standards
What is higher-skill upgrading?
Workers move into technology- and knowledge-based industries
Why do some workers struggle to transition into better jobs?
Women, migrants, and casual workers often face barriers to skill upgrading
Why must social upgrading be actively promoted?
Market forces alone do not ensure better working conditions
What interventions can support social upgrading?
Trade unions, worker representation, and company-led ethical initiatives
What role do governments play in social upgrading?
Enforcing labor laws and workplace protections
How can international agreements promote better labor standards?
Through ILO and OECD guidelines that set global expectations for worker rights
How do regional-bilateral agreements affect industrial policy?
They impose stricter constraints, making it harder for developing countries to alter comparative advantages
Do developing countries have more flexibility under WTO or regional-bilateral agreements?
WTO allows some industrial policy flexibility, but regional-bilateral agreements severely restrict it
What are the benefits of multilateral integration under WTO?
Market access, rules-based trade, and selective industrial policy tools
What industrial policy tools remain under WTO?
Limited tariff adjustments, R&D subsidies, human capital investment, and some investment regulations
How does WTO impact patent policies?
It allows limited flexibility, such as compulsory licenses under certain conditions
How do regional-bilateral agreements compare to WTO?
They offer better market access but impose stricter industrial policy constraints
What restrictions do regional-bilateral agreements impose?
No tariff flexibility, removal of subsidies, stronger investment and intellectual property protections
What is the Investor-State Dispute Settlement (ISDS) mechanism?
It allows foreign companies to sue governments over regulations that affect profits
What are two key development strategies?
Exploiting existing comparative advantages (e.g. low-wage labor) and creating new comparative advantages (e.g. industrial policies)
How did Korea and Taiwan develop successfully?
By using tariffs, subsidies, FDI regulation, weak intellectual property laws, and local content requirements
Why is it harder for developing countries to follow Korea and Taiwan’s model today?
WTO and regional-bilateral agreements restrict these industrial policies
What are the positive aspects of WTO trade policy for developing countries?
Market access, removal of discriminatory barriers, and a dispute resolution system
What trade barriers must developing countries reduce under WTO?
Non-tariff barriers like quotas and import licenses must be replaced with bound tariffs
Are export subsidies allowed under WTO?
No, except for limited cases like research, development, and human capital subsidies
What is a “safeguard mechanism” under WTO?
A temporary trade restriction to protect industries but under strict regulations
What investment policies are banned under WTO?
Local content requirements, export balancing requirements, and most performance-based investment rules.
What investment policies are still allowed under WTO?
Joint ventures, technology transfer requirements, and local hiring/training regulations
Does WTO eliminate all industrial policy space?
No, but it significantly limits the tools available to developing countries
What is the TRIPS Agreement?
A WTO rule requiring all countries to grant 20-year patents, including for pharmaceuticals
Can countries issue compulsory licenses for patents?
Yes, but only under strict conditions, such as public health emergencies
How can countries maintain flexibility in patent policies under WTO?
By setting stricter patent granting conditions or requiring local manufacturing (e.g. Brazil)
How do regional-bilateral agreements compare to WTO in terms of tariffs?
They require tariffs to be lowered even further, often to zero
What happens to safeguard measures in regional-bilateral agreements?
They are removed or made ineffective
Why are duty drawbacks eliminated in regional-bilateral agreements?
To prevent exporters from getting tax rebates on imported inputs
What does “national treatment” mean for foreign investors?
Governments must treat foreign and domestic companies equally
What is the “right of establishment” in investment rules?
Foreign firms must be allowed to operate freely in host countries
Why are performance requirements banned in regional-bilateral agreements?
To prevent governments from forcing foreign firms to use local suppliers or transfer technology
How does ISDS impact national sovereignty?
It allows foreign investors to sue governments, bypassing national courts
What are pipeline patents?
They require countries to grant patents on drugs developed before their patent system existed
How do clinical trial data exclusivity rules impact generic drugs?
They delay the production of generics by extending market exclusivity for brand-name drugs
How are compulsory licenses restricted in regional-bilateral agreements?
They become harder to issue, limiting access to affordable medicines
What new patentable areas are included in these agreements?
Genetic materials, plant varieties, and biotechnology innovations
What is the key trade-off for developing countries in regional-bilateral agreements?
Preferential market access versus losing industrial policy flexibility
Why do some developing countries sign regional-bilateral agreements despite the restrictions?
To attract foreign investment and secure immediate market access
How do major economies pressure developing countries into these agreements?
Through economic leverage and diplomatic influence (e.g., US, EU)
Why do analysts worry about these agreements?
They may trap developing countries in low-value production rather than allowing industrial upgrading
