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Chapter 3: Problem 10

What is meant by the term industrial policy? How do governments attempt to create comparative advantage in sunrise sectors of the economy? What are some problems encountered when attempting to implement industrial policy?

Short Answer

Expert verified
Industrial policy is a proactive strategic effort by the government to steer economic development. Governments can create a comparative advantage in emerging industries (sunrise sectors) through measures like investing in technology or education, reducing tariffs, providing subsidies, etc. However, implementation of industrial policy can face issues such as incorrect sector selection, skilled labour shortage, political interference, and inefficiency due to government intervention.

Step by step solution

01

Understanding Industrial Policy

Industrial policy is a strategic effort by the government to influence the development and growth of key sectors of the economy. This is typically done via subsidies, taxes, regulations and other types of government interventions.
02

Creating Comparative Advantage in Sunrise Sectors

A government may aim to create a comparative advantage in 'sunrise sectors', which are emerging industries set to become important in the future. The government can foster growth in these sectors through investing in technology or education, reducing import tariffs, providing subsidies, or otherwise supporting their development.
03

The Challenges Encountered

There are numerous issues that can arise when attempting to implement an industrial policy. These might include choosing the wrong sectors to promote, shortages of skilled labour, political interference, and potential inefficiencies created by government intervention.

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