26 August 2010

China, India and industrial policy

Latest paper on Voxeu by Felipe, Kumar and Abdon from the ADB analyses export data to show that China and India are two outliers, with more sophisticated and diversified export baskets, given their income levels- the paper argues ' that the capabilities that both China and India accumulated before reforms started are vital to understanding their growth later on. While we agree that planning led to mistakes, inefficiencies, and to the mis allocation of resources in both countries, we argue that, given their income per capita, China’s and India’s export baskets are more sophisticated – as measured by the income content of the export basket – and diversified – as measured by the number of products exported with revealed comparative advantage – than might otherwise be expected. Both are far ahead of countries at similar levels of development. This could have been achieved only through planning, industrial policy, and sector targeting.'
Going ahead, this calls for more support from the governments to exploit the advantages in place.

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