Industrial policy can be thought of as any type of selective government intervention or policy that attempts to alter the structure of production in favor of sectors that are expected to offer better prospects for economic growth in a way that would not occur in the absence of such intervention. Countries do not know ex ante if a select policy would be successful in successfully aiding a sector or production. So, there has to be trial and error to discover which sector is successful and which is not.
Gebreeyesus and Iizuka study floriculture and salmon industry in Ethiopia and Chile, respectively, and argue that experimentation and coordination also has to be a part of industrial policy. They look at (i) knowledge development and diffusion, (ii) entrepreneurial experimentation, (iii) influence of the direction of search, (iv) market formation, (v) legitimating, (vi) resource mobilization and (vii) development of positive externalities.
“Even though these two cases are different in many aspects (for example, geography, type of activity, developmental stage, and even the guiding philosophy of the governments), we found various similarities that tie these two successful cases together. The triggering factors for the emergence of the new activities were a combination of different factors including natural endowment and favourable climate. The entrepreneurial experimentation by private entrepreneurs was, however, critical for 'discovery' of the sectors in both countries.
One characteristics of the early stage in new activities is the existence of large uncertainty in technology, marketing, and infrastructure. The governments' selective support at the initial stage was equally critical in reducing these uncertainties. In both cases, the government role changed through phases of development of the sectors. At the early stage governments played a developmental role by providing some inputs and sharing costs (for example, finance and technical support in the case of Chile, and finance, land, and transport co-ordination in the case of Ethiopia). These helped for the success of the pioneers and entry of many other investors, thus created conditions for take-off. In the growth stage other forms of engagement such as increasing regulatory role, formalization of the interactions, and strengthening of institutions start to take place.
Another important lesson from both cases is harmonization between the governments and private sector in the sector building. This was made possible by the presence of pathfinder institutions that consistently pursue the development of the sector and co-ordinate activities accordingly. In Ethiopia, the industry association played the pathfinder role. In Chile, FundacionChile was the key institution from start, even though in the later stage the Association of Salmon Industry was also instrumental. In both cases the pathfinders play important roles in consensus-building between government and the sector, standard-setting (self-regulation), collective market search, developing capacity of members, promotion and legitimation of their respective sectors.”
Here are two more stuff on industrial policy: