TWN Trade & Development Series No. 36

Is Industrial Policy Relevant in the 21st Century?

By Mehdi Shafaeddin

Publisher: TWN (ISBN: 978-983-2729-33-4)

Year: 2008   No. of pages: 76


The author argues, in this study, that in recent decades the need for industrial policy in developing countries has increased because of globalization and the evolving nature of the world economy. This is because international production and trade have been increasingly dominated by large transnational corporations, technological innovation has accelerated and production has become more knowledge-intensive. Yet, developing-country governments' capacity to promote the entry of domestic firms into this competitive environment has been eroded. It has been eroded by international trade rules and conditionalities imposed by international financial institutions and bilateral donors which have, in turn, been influenced to a large extent by the prevailing neo-liberal orthodoxy. The neo-liberals advocate that industrial policy has no place in economic development; trade and industrial development should be left to the operation of market forces.

This study contends that the neo-liberal approach is seriously flawed. The policies of universal, across-the-board and premature trade liberalization dictated under this approach suffer from several theoretical shortcomings, which have been borne out in the actual experience of developing countries in recent years. Neither does the experience of successful early industrializers support the neo-liberal hypothesis on trade liberalization.

In light of the failure of the neo-liberal approach, the author advances an alternative framework of trade and industrial policy aimed at spurring industrialization and development in developing countries. Eschewing a "one size fits all" and pure market orientation, his proposed policy framework envisages dynamic and flexible trade and industrial policies. In such a framework, he allows mixed roles for the market, firms and the state in industrialization and in coordinating economic activities in different countries at different levels of development and in each specific country over time. Further, he strongly advocates changes in the World Trade Organization (WTO) rules in order to allow what he calls a "bottom-up" approach.


MEHDI SHAFAEDDIN is a development economist with a D.Phil. degree from Oxford University, UK; and Director of Global Vision Training and Consultancy (Industrial Capacity Building and Management of Competitiveness). He is currently affiliated to the Institut de recherches economiques (IRENE), Universite‚ de Neuchatel (Institute of Economic Research, University of Neuchatel, Switzerland). A former Head of the Macroeconomics and Development Policies Branch, United Nations Conference on Trade and Development (UNCTAD), he is the author of Trade Policy at the Crossroads: The Recent Experience of Developing Countries (Palgrave Macmillan, 2005) and many articles in international journals on development issues related to trade and industrial policies, WTO issues, economic reform, diversification of oil-exporting countries, China, Africa, etc. He has also developed a training course in "Industrial Capacity Building and Management of Competitiveness in a Globalizing Era" in cooperation with the University of Neuchatel. He can be contacted at


1              Introduction           

2              Main Features of the World Economy and Their Implications for Industrialization

3              Different Approaches to Industrial Policy      

4              Contradictions and Double Standards in GATT/WTO Rules     

5              Shortcomings of the Theory Behind the "Trade Liberalization Hypothesis"

6              The World Bank's Evaluation of the Economic Performance of the MENA Region

7              Evidence from History and the Experience of Developing Countries        

8              A Framework for Development-Oriented Trade and Industrial Policies    

9              Conclusions         




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