The Political Economy of Industrial Policy

By Kalim Siddiqui

I. Introduction

This article aims to discuss industrial policy by focusing on a number of theoretical issues, in particular in relation to manufacturing and the different rationales for industrial policy making. The paper highlights industries by looking into the importance of industrial policy to build and modernise manufacturing and focus the need for rethinking our understanding of industrial policy, especially in developing countries, also called late-developers. 

In developing countries, the agriculture sector is overburdened and huge proportions of their populations rely on the primary sector for their livelihoods and large numbers of people are trapped in low productivity and low income activities. Therefore, there is a need to diversify the economic structure and expand the industrial sector so that it can create employment and increase incomes. The current advanced economies were able to adopt specific industrial policies to build the industrial sector, which had played a very crucial role, and thus these countries were able to successfully increase the value output into their economies. I will briefly discuss the industrial policy experiences of East Asian and Latin American countries. 

Historically, the use of industrial policies by governments has proved beneficial to a number of countries. Structural transformation, technological upgrading, and innovation do not always take place autonomously, but rather require careful and consistent state intervention and support. The global financial crisis of 2008 put industrial policy back on the policy agenda of the developing countries. The issue most governments face today is not whether to have an industrial policy, but how to best design and implement an industrial policy. 

Government intervention in industrial policies has been an issue of contention as long as the economics profession has existed. Early political and developmental economists such as Rosenstein-Rodan, Hirschman, Gerschenkron, and Prebisch emphasized the importance of government intervention and the ability of a state to influence economic activity in ways that would be most beneficial to the country. In contrast, the IMF and World Bank were quietly opposed to such ideas, and during the 1980s, under their pressure, the development policy shifted towards a more market-centred approach, limiting government intervention to create a more competitive environment. Such views were fully supported by mainstream (neo-classical) economists, who claimed that it is best for manufacturing not to have an industrial policy. More recently, however, there has been increased public pressure to reduce unemployment and stimulate economic growth, and, in this context, a revived interest in industrial policy has taken place. (Siddiqui, 2018a; 2017a)

Here, my attempt is to provide a rationale for state policy intervention in the building of manufacturing. My approach is quite different from the traditional one, which was largely limited to subsidies and tariff protection. My focus will be on increased involvement, mainly in the allocation of funds for research and development, and access to cheap credits to publicly fund long-term investments and policy commitments.

II. Policy Debate

There is no agreed definition of industrial policy. However, most researchers generally defined it as including any policy that affects industry (usually interpreted as manufacturing).  (Noman and Stiglitz, 2016; Chang, 1993) Some others included ‘selective’ or ‘targeting’, namely a policy that deliberately favours defining industrial policies to enhance productivity and efficiency. It is argued that industrial policy should focus public goods e.g. on research and development, technology and infrastructure and should not involve ‘picking winners’. 

For instance, Warwick (2013: 16) defines industrial policy as “any type of intervention or government policy that attempts to improve the business environment or to alter the structure of economic activity toward sectors, technologies or tasks that are expected to offer better prospects for economic growth or societal welfare than would occur in the absence of such intervention”. Other researchers Pack and Saggi (2006: 2) consider an industrial policy to be: “any type of selective intervention of government policy that attempts to alter the structure of production towards sectors that are expected to offer better prospects for economic growth than would occur in the absence of such intervention, i.e. market equilibrium.” Here the industrial policy is aimed at altering the economic activity and structure. Another economist, Dani Rodrik (2008) suggests that infrastructure investments are very important and such investments do favour setting up industries, and training and skill programmes to attract an inflow of capital and should be part of the industrial policy. 

It seems that industrial policy is defined as an effort by the state to encourage the development and growth of manufacturing, and its design and implementation needs to take into account both a government’s capabilities and political will. Industrial policy refers to organized government involvement in guiding the economy by encouraging investment in targeted industries. Such policies serve to allocate capital across manufacturing industries by a system of taxes, subsidies, and investment incentives designed to move the economy along a specific pathway. Industrial policy was in place in most of the advanced economies during the post-war economic reconstruction of the 1950s, including the UK, Germany, France, Norway, Sweden, and Japan.

In fact, industrial policy involves more than just manufacturing, but still there is a need in the developing countries to promote manufacturing due to the following reasons: it is widely recognised that historically, the manufacturing sector has been the main source of technology driven productivity growth in advanced economies. Additionally, the increase in agricultural productivity would not have been possible without manufacturing, which provided machinery, irrigation pumps, and so on which made the ‘green revolution’ possible. (Siddiqui, 2021) More recently, rapid increases in productivity in services were made possible due to government support, like logistics, transport equipment, fast delivery system, tracking devices and mechanised warehouses. 

The development economists in their growth model, such as Rosenstein-Rodan, Nurske, Hirschman and others emphasised the need for coordinated investment between activities to promote economic activities and linkages (both forward and backward) to promote industries and particularly strong interdependence between sectors. There are also infant industry arguments, which are based on productive capabilities which could be developed overtime. Infant industries need protection for a certain period, especially when their producers are trying to catch-up with superior producers from overseas. For example, the European governments provided funds for the development of Airbus against US Boeing, which had dominance over the world’s civilian aircraft market. 

Despite the criticisms by mainstream economists regarding the need for an industrial policy, states nevertheless adopted industrial policies, for instance, the US did this throughout its history. Even today, the advanced economies will select and target a few industries known as ‘strategic industries’ and provide funds to enhance research and development and to safeguard, which they consider of national importance. (Siddiqui, 2020a) It requires government support for certain strategic industries (such as high technology), which is considered important to future domestic economic growth and expected to provide wide spread benefits (externalities) to society. The ‘strategic trade policies’ could be described as an attempt by the government to improve economic performance by promoting particular exports or discouraging particular imports, such policies have been extensively practiced by some successful today’s economies like the US, Germany, Japan, and South Korea. 

Despite the criticisms by mainstream economists regarding the need for an industrial policy, states nevertheless adopted industrial policies, for instance, the US did this throughout its history.

The argument behind ‘strategic trade policy’ is that government can assist domestic companies in capturing profits from foreign competitors. The US has pursued industrial policies to enhance the competitiveness of domestic manufacturers and such policies involves channelling government resources into targeted industries, which it views as important for its economy. For instance, the methods used are loan guarantees, tax guarantees etc. I mean to say that the US government uses various measures to influence the economy, such as in the agriculture sector by providing research and technical assistance and dissemination of such information to farmers through agricultural extension services and investments in irrigation projects. The government in the past also supported a number of industries such as defence, aerospace, and energy. The US government also provides export subsidies to encourage exports through Export-Import Bank (Eximbank) and this support is available to any US export firms irrespective of size. 

 In order to maintain their manufacturing base and technological leadership, for instance, Japan and South Korea have taken policy measures to help, especially in high-tech and electronic industries. (Tsuru, 1993; Amsden, 1989; Johnson, 1982) For example, the Japanese government in the 1960s and 1970s assisted capital intensive industries such as shipbuilding, steel, and high-tech industries like optical fibres and semi-conductors through import protection and R&D subsidies. The government industrial policy became more explicit with the establishment of the Ministry of Economy, Trade, and Industry (METI) to assist targeted industries and support them in the allocation of foreign exchange, credits at low interest rates and R&D subsidies. As a result, Japan became technological leader in a number of key industries including the electronics and auto-industries. 

Joseph Schumpeter (1987) argued that under the conditions of free entry and allocative efficiency, there is little incentive for innovation, because monopoly rent, also known as ‘entrepreneurial profits’ will compete away. Moreover, innovation is important for economic growth and it may be damaged by an improvement in the static allocative efficiency of the economy.

Moreover, industrial policy differs from the macroeconomic policy as under the former the government targets only a subset of the economy, while the macroeconomic policy which includes tax rates, rates of interest, and levels of fiscal spending, generally does not discriminate against companies or industries, whereas industrial policy includes subsidies on R&D, taxes and cheap credits.

The ‘strategic trade policy’ favours the entry of domestic firms into global markets. The policy is that government can assist domestic companies in capturing economic profits from foreign competitors. According to it, the government policy can alter the terms of competition to favour domestic firms over foreign firms and shift profits in imperfectly competitive markets from foreign to domestic companies. The standard example is the aircraft industry, which has a high cost of introducing new aircraft and a significant learning curve in production that leads to decreasing unit production costs. It means that the aircraft industry can support only a small number of producers. This industry is also typically associated with national prestige. It is based on the notion that in some the dynamic economies of scale and the size of global markets, allow for profitable production by few firms. The strategic trade policy, Tyson (1992: 3) notes: “… demonstrate that, under conditions of increasing returns, technological externalities, and imperfect competition, free trade is not necessarily and automatically the best policy.” This policy means that government support of domestic companies to support domestic industries could help to deter foreign companies from entering the market. It is said that a successful state intervention produces insignificant gains for consumers but monopoly profits for domestic firms, hence a net national welfare gain. For example, in the US, a strategic industrial policy in the aerospace industry promoted domestic industries.

The ‘strategic trade policy’ favours the entry of domestic firms into global markets. The policy is that government can assist domestic companies in capturing economic profits from foreign competitors.

Government interventions have a long history. During the late 18th and 19th centuries, politicians: such as Hamilton in the US and List in Germany favoured industrial policy through state intervention to promote domestic industrialisation in the face of British industrial dominance. (Siddiqui, 2020b) The German Historical School supported infant-industry argument, which suggested that new industries take time to get established because of start-up problems, and the need to insulate themselves from the competition. This argument also had support after the 1950s in Africa, East and South Asia and Latin America. Classical economists like Adam Smith and David Ricardo argued that ‘free trade’ benefits all countries, and opposed the idea that countries would benefit more if they engaged in certain forms of state support. (Siddiqui, 2018b; 2016b) However, recent trade theorists like Brander and Spencer, 1985, Krugman, 1986, and Richardson, 1993 have put forward strategic trade theories. For example, suppose the European Union (EU) subsidised their companies and protected domestic markets, they would have to ensure that their companies enter the overseas markets, while deterring US companies, thereby ensuring that the EU, not the US, received the monopoly profits. 

I find that some issues of recent policy such as the rise of the global value chain, neoliberalism, financialization, and increased US control over the global economic policy after the collapse of the Soviet Union and the end of the Cold War. During the 1980s there were wide discussions on East Asian and Chinese industrial policies. (Siddiqui, 2020c; 2016c) Prior to the 1990s debt crisis, many developing countries viewed the industrial policy as an important policy for economic diversification and to get rid of poverty and economic backwardness. Therefore, we should not ignore the differences in relative positions of countries in global geopolitics, particularly the distribution of economic power across countries. The rich and powerful countries with a larger GNP (Gross National Product) have a self-interest in supporting trade, capital liberalisation (Siddiqui, 2017b; 2017c)  and a stable monetary system, since most global companies are based in rich countries and are able to corner the bulk of the benefits. It seems that industrial policy is the one way that the late-developers, who happen to be poor as well, can challenge the global power structure. 

Despite, the relevance of industrial policy, mainstream economists have neglected this area of study due to not taking into consideration crucial issues like uncertainty, macroeconomic management, and role of state, arising from the process of change. They have neglected the increasing financialization of the world economy. The uncertainty arises as firms, in their efforts to control markets, may adopt predatory pricing strategies or mergers and acquisitions to remove rivals. Firms can also reduce uncertainty by increasing control over suppliers through signing long-term contracts or through investments. A number of measures could be taken to reduce uncertainty such as infant industry protection and also guaranteeing demand. By providing government procurement to domestic companies so that they have stable demands, such as the US policy towards Boeing, Finland’s policy towards the electronic industry and the Indian government’s policy towards the software industry. The US government also initially financed computers, the internet and semi-conductors through public funding. 

The IMF (International Monetary Fund) and other international financial organisations imposed SAP (Structural Adjustment Programme), including monetarist macroeconomic policies on the developing countries, especially those which faced a BoP (balance of payment) crisis in the past decades. (Siddiqui, 2020d) The SAP had one policy for all, which included fiscal austerity, trade liberalisation, deregulation, privatisation, and increasing exports. However, when the advanced economies experienced the 2008 global financial crisis, they ignored ‘free market’ mechanisms which preached by them to developing countries, and instead, the state came to rescue their economies. (Siddiqui, 2012; 2015a) Since the early 1990s, the financialization process has affected several developing countries, which could be seen via declining investments/GDP ratios, declining wages, and the growing share of the financial sector in their GDP. (Siddiqui, 2019a; 2019b) Financialization is manifested in a number of ways including an increasing reliance on external finance, increasing share of finance in the economy, and short term investment strategies. Capital liberalisation and the lack of global regulation in areas of capital flows, tax avoidance and evasion have weakened governments in developing countries. 

On world-wide trade liberalisation, following multilateral negotiations in 1995, the GATT’s (General Agreements on Trade and Tariffs) tasks and responsibilities were extended, which was then called the WTO (World Trade Organisation). The WTO demanded all member countries now only adhere to trade and capital liberalisation, but also covered new areas, namely Trade Related Intellectual Property Rights (TRIPs),Trade Related Investment Measures (TRIMs) and General Agreement in Trade in Services (GATs).Under these provisions, copy rights were protected and regulations of the foreign investments and foreign services were removed. These regulations favoured the interests of Western-based multinational companies operating in developing countries. (Siddiqui, 2018c; 2018d)

Table 1 shows that all major economies with largest GDP also have a strong manufacturing sector and the industrial policy has played a key role in building high value manufacturing in these countries (see Figure 1, also see Pie Chart 1).

I mean to say that the global power imbalances have been more visible in recent decades in the areas of industrial policy. (Siddiqui, 2020e) During the colonial period, the European powers banned setting-up high-value manufacturing, and colonies and semi-colonies were encouraged to specialise in the production of primary commodities and low-value products in the name of ‘comparative advantage’, and finally, unequal economic and trade treaties were forced on them. (Siddiqui, 2019c)

A number of studies found that trade and capital liberalisation and the removal of subsidies and other incentives had adversely affected domestic producers and they experienced closures.

Raul Prebisch, a strong proponent of import substitution policy, hoped that such policies would be able to substitute for manufactured imports and also develop technological capabilities. Some economies like Brazil witnessed rapid expansion of manufacturing and were able to increase innovations and productivity, but the country was unable to successfully substitute for foreign companies and also did not lead uninterrupted industrial growth. In the 1980s and 1990sthe constraints in the balance of payment lead to the foreign debt crisis, and most of the Latin American countries abandoned import substitution policies and adopted neoliberal economic policy. However, it did not lead to a positive impact on productivity and capabilities. A number of studies found that trade and capital liberalisation and the removal of subsidies and other incentives had adversely affected domestic producers and they experienced closures.

III. Experiences in Latin America and East Asia

For the last three decades or so, in most of the Latin American countries, the service sector is growing faster and their economies are bypassing the industrialisation process which historically happened in the advanced economies. Latin America appears to be the worst hit region since the 2008 global financial crisis. The advanced economies too have experienced a significant fall in employment in manufacturing, which is known as de-industrialisation. However, manufacturing output at constant prices has held its own comparatively well in the advanced economies since much of the discussion on deindustrialisation focuses on nominal rather than real values. Technological progress and productivity are no doubt a large part of the story behind the decline of employment in manufacturing and deindustrialisation in advanced economies. In Latin America, the political consequences of premature deindustrialisation are more subtle, but could be even more significant. In fact, premature deindustrialisation may make the democratisation process less likely and more fragile in the near future.

In the 1950s, Latin American economies were better positioned than the East Asian economies, meaning that the former had more developed industries and technologies than the latter group. However, despite, the Korean war from 1951-53, and the Japanese invasion of China and occupation of most of the East Asian countries such as South Korea, Singapore, and Taiwan, while these countries have substantial differences, they have managed to accumulate capital, expand manufacturing, industrialise and join the advanced economies of the world in a very short period. 

The mainstream economists argue that the reason for differences in performance is mainly due to the adoption of ‘Import-Substitution Industrialisation’ (ISI) by Latin American countries, while East Asia adopted ‘Export-Oriented Industrialisation’ (EOI), which resulted in divergent industrial and economic performances of these two regions. The ISI strategy aims to encourage domestic companies and protect them from foreign competition, and it requires the government to put in place a strategy to protect domestic producers through tariffs, subsidised credits, exports and R&D. The EOI targets setting up industries with a primary focus on overseas markets. This strategy relies on a greater degree of foreign markets and technological support. Both strategies aim to help BoP, spur investments, and create jobs. However, the EOI is helpful for small countries to achieve economies of scale, as this strategy has larger markets rather than just domestic markets. However, EOI needs support from advanced economies and foreign companies to access their technology, capital and markets and is hence more vulnerable to international pressures, as we have seen during the East Asian economic crisis of 1997, when in a very short period the whole region was plunged into a deep crisis. 

However, mainstream studies on East Asian economies ignore the key role played by the state through selective industrial policies in the form of protection of domestic companies, investment incentives, and export promotion. Alice Amsden (1989) found that in South Korea successful industrial transformation was mainly possible due to the selective industrial policy, which was strategically designed to build technical upgrading in export sectors including introducing performances for firms benefitted by the state support. She used the phrase, “getting prices wrong”, meaning that the government deliberately distorted market prices in areas such as long-term interest rates and foreign exchange rates to support the initial period of industrialisation. Similarly, Robert Wade (1990) emphasised that the crucial role of the state in Taiwan’s successful transformation from a poor agrarian dominated economy to a highly advanced world-leader in manufacturing. He found that the state was able to ‘guide the market’ to improve the technical capabilities of the export sector. These studies point out that the state created a complex system of incentives and discipline and a combination of both of ISI and export promotion. 

The rapid transformation of the post-war Japanese economy was also due to state intervention rather than free market policy, as mainstream economists would like us to believe. Japan’s successful industrial policy drew a great deal of attention. In Japan the Ministry of International Trade and Industry (MITI) orchestrated and directed the development of selected industries and products which it deemed necessary for Japan to compete in the international market. (Siddiqui, 2015b) The MITI only assisted the private sector in targeted industries. It generally financed no more than 50 percent of a project, leaving the rest to the private sector and market influences. The MITI is not autonomous but is overseen by various government agencies. Japan’s automobile industry served as a highly successful model where a specific industry was targeted to assume an expanded role in the world markets. As Chalmers Johnson (1982: 17) noted that state policy targeted to promote high tech manufacturing. “the issue is not of the state intervention in the economy. All states intervention in their economies for various reasons… Japan is a good example of a state in which the developmental orientation predominates.” He further said that a development state is where: the political elites are committed to breaking dependency and underdevelopment; their priority is not to enhance their own privileges and accumulate personal wealth, and they are able to build institutions to effectively translate their commitment into reality. Besides building modern manufacturing they were also able to induce their companies to redistribute their profits to society at large.  (Johnson, 1982)

In 1986, the South Korean government introduced the Industrial Development Law (IDL), which helped to implement selective industrial policy and had provisions for sectoral rationalisation programmes. Under IDL, a number of rational programmes were carried out covering a number of industries such as auto-industries, electrical and construction machinery, coal mining and textiles. (Amsden, 1989)

In South Korea, the importation of machines was controlled and the government encouraged the use of domestic machines, credits to imports were only given if this machinery was not available domestically. During the 1970s, the government prescribed for domestic firms to invest in chemical and heavy industries. For example, the ship-building industry grew from scratch and emerged to become the world’s second largest in just ten years. Private investors were encouraged to invest in the ship-building industry and the President Park Chung Hee himself took interest in the growth of this sector. The state-controlled financial institutions provided credits to ship building and other heavy industries, which had a very visible impact on private investors. In 1973, the government imposed a price ceiling when it was seen to be necessary. In addition to price control, the state also put restrictions on entry, wherever it thought there were too many firms, and the state encouraged mergers to promote efficiency. 

In South Korea, the state also saw the dependence on foreign savings to finance investments as problematic, and solutions were seen in building the exports sector without a balance of payment deficit. It was believed that the reason for chronic trade deficits could be the underdevelopment of capital and intermediate goods, and therefore, the development of heavy and capital goods industries was seen as imperative for the overall economic development of the country. To successfully set up a strong manufacturing base in the country, the macroeconomic policy was geared to suit the need of building manufacturing and high levels of investments in the economy were made, with expansionary measures if necessary. The heavy reliance on indirect taxes and consumer credits were banned so that all credits were channelled to industries. Private car ownerships were discouraged by high taxation, foreign holidays and imports of luxury goods were banned prior to 1990 and imports were restricted to high tech and machinery. As Chang (1993: 139) notes: “Despite being citizens of a major exporter of passenger cars, Korean until very recently owned far fewer passenger cars than other developing countries as a comparable income level. In 1985, there were 73.5 people per passenger car in Korea; whereas the corresponding figures in 1983 were 27.0 in Taiwan, 21.8 in Chile, 16.3 in Malaysia and 15.2 in Brazil…. Given such a clear anti-consumption bias, Korean macroeconomic policy may be more appropriately understood as investment management’ rather than as ‘aggregate demand management.”

However, in South Korea, macroeconomic policy measures were considered less-effective to achieve the rapid building of manufacturing and upgrading of industries owing to their uncertain impact on specific sectors. The government industrial policy recognised that ‘the market mechanism’ alone could not achieve a ‘comparative advantage’ and build heavy industries. Therefore, the state identified ‘strategic industries’ i.e. the priority sector, and government supports were extended into such areas as steel, electricity, oil, gas, coal and shipbuilding. To achieve economies of scale and efficient production scale in the priority sector, the government targeted overseas markets from the beginning, in order not to incur low capacity utilisation. The government had tight control over foreign direct investment and vital conditions were negotiated with foreign companies for the transfer of technology to domestic companies. To raise productivity, provisions of subsidised credits for capacity upgrading, import substitution of inputs, and funds were also made available for R&D and skills upgrading programmes. (Amsden, 1989)

The question arises of why state intervention worked in South Korea but not in Africa, South Asia or Latin America. To answer this, we need to revisit Schumpeter (1987) who argued that to start innovation or new industries needs ‘profits far above what is necessary in order to induce the corresponding investment’ i.e. entrepreneurial profits, which makes risk-taking attractive, and what is also called ‘quasi-rents’. Then entrant barriers become necessary to provide incentives for investments in new industries. Similarly, Chang (1993: 145) argues: “In order to set-up an industry, a late-developing country has to import technology, but making the imported technology work requires a period of ‘learning’, which is often a costly activity with highly uncertain returns. Such risk means that those who are starting new industries in a late-developing country have to be provided with some form of entry barrier and the resulting rents… And this is what the states in many late-developing countries, from Germany and Japan down to Korea and others …have tried to provide through tariff protection and other forms of state-created rents like subsidies and preferential loans.”

South Korean large family-controlled businesses are often ‘Chaebols’, and have strong ties with the government. In fact, after taking over the government in a military coup in 1963, President Park Chung-Hee began a modernization drive, known as “guided capitalism.” Under it, the governments elected a few firms and provided them with cheap credits. There are now 45 conglomerates that fit the traditional definition of a Chaebols and the top 10 own more than 27% of all business assets in South Korea. (Amsden, 1989)

In 1994, Korea significantly reduced government regulations for foreign borrowings which led to a rise in foreign debts, which trebled from US$ 44 billion to US$ 120 billion in 1997in just three years. However, the World Bank in 1997 considered debt/GNP ratios under 40% as low risk cases, but Korea’s debt/GNP ratio was only 22%, while it was 70% for Mexico, 33% for Argentina, 57% for Indonesia, and 35% for Thailand. 

IV. Conclusion

Industrial policy should be seen as an important policy for a country aiming to accomplish industrialisation, which needs a long-term policy to reverse pre-mature industrial decline. The industrial policy could be to correct ‘market failure’ and to coordinate a set of state incentives such as subsidies and tariffs on imports. Therefore, state support is crucial in order to establish industries and relying alone on market forces and foreign corporations will be disastrous for the developing countries as shown by the recent experiences of the Latin American countries. 

The study has found that industrial policy is very important for the developing countries in order to diversify their economies and to build the manufacturing sector, which would ultimately raise overall productivity, incomes and employment. To achieve this, the role of the state is crucial and leaving this to the market forces alone is a grave policy mistake and does not have any evidence of success in the past. 

The past industrial policy and its outcomes in Latin America and East Asian countries have been briefly examined. In short, in Latin America, for instance, manufacturing in Brazil grew until mid-1980s and the country was able to build manufacturing in certain area, which was largely focused on domestic demands, but then the country experienced a debt crisis and under IMF pressure adopted ‘pro-market reforms’ i.e. SAP, which led to the abandoning of protections to the domestic industries. And as a result, Brazil witnessed the closure of a number of industries and deindustrialisation and afterwards, it focused more on exports of primary commodities to repay its foreign debts. 

While, in the East Asian countries the neoliberal policies were imposed during the 1997 East Asian crisis and by that time most of these countries, namely South Korea, Taiwan. Singapore and Malaysia were able to build a competitive edge in specific industries. (Siddiqui, 2016a; 2009)  In fact, from the beginning, the East Asian countries began developing their manufacturing sectors by targeting the export markets, and also began for a brief period with ‘import substitution policy’. They realised that their domestic markets were limited and thus manufacturing could not achieve economies of scale. These countries opened their industries to foreign competition, welcomed foreign investment and technologies, and also focused on exports, which was used to stimulate economic development. Manufactured products soon became the principal exports of East Asian economies in contrast to other developing countries that largely focused on exports of agricultural commodities. 

About the Author

Dr. Kalim Siddiqui Dr. Kalim Siddiqui is an economist, specialising in International Political Economy, Development Economics, International Trade, and International Economics. His work, which combines elements of international political economy and development economics, economic policy, economic history and international trade, often challenges prevailing orthodoxy about which policies promote overall development in less developed countries. Kalim teaches international economics at the Department of Accounting, Finance and Economics, University of Huddersfield, U.K.. He has taught economics since 1989 at various universities in Norway and U.K.


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The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The Political Anthropologist.