Public Policy and Industrial Transformation in the Process of Development

Pierre-Richard Agenor () and Hinh T. Dinh ()
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Pierre-Richard Agenor: University of Manchester, United Kingdom
Hinh T. Dinh: World Bank, Washington DC, United States

No 175, Working Papers from Development and Policies Research Center (DEPOCEN), Vietnam

Abstract: This paper studies the role of public policy in promoting industrial transformation from an imitationbased, low-skill economy to an innovation-based, high-skill economy, where technological progress now occurs through the domestic invention of ideas. Industrial transformation is measured by changes in an index of industrial structure, defined as the ratio of the variety of imitation- to innovation-based intermediate goods. A key mechanism through which productivity increases initially in both the imitation and innovation sectors is through a knowledge externality associated with learning by doing in the imitation sector. The process of industrialization increases the demand for high-skill labor, inducing individuals to invest in education. The model also emphasizes the distinction between basic or core infrastructure, which promotes imitation, and advanced infrastructure, which promotes innovation. A calibrated version for a low-income country is used to perform several policy experiments, including an increase in investment in infrastructure, a reduction in the cost of training, and improved enforcement of property rights.

Keywords: industrial transformation; economic growth; public policy (search for similar items in EconPapers)
JEL-codes: H54 I25 O33 O41 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:dpc:wpaper:0714

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