The Quality of
Industrial Policy
as a Determinant of Middle Income Traps
and How Latecomers Can Improve It
Policy Design and Formulation in Developing
Countries
Hypothesis



The lack of quality in industrial policy is the main
cause of a middle income trap (or any other longterm growth problem).
Installation of high-quality policy that actively
supports value creation by the private sector, not
just freeing and opening markets, is required to
escape the trap.
Other factors such as natural resources, ODA and
capital inflow are also important, but they do not
critically determine a nation’s long-term growth path.
Policy quality matters most in the long run.
Why Do Economies Diverge?
International Comparison of
Industrial Policy Quality





The GRIPS Development Forum has visited Asia and
Africa to compare industrial policy quality.
Asia—Vietnam, Singapore, Taiwan, Korea, Malaysia,
Thailand, Indonesia, India, (Cambodia: next week)
Africa—Ethiopia, Rwanda, Mauritius, Mozambique,
Zambia, Tanzania, Ghana, Uganda
We evaluate policy formulation, implementation and
impact. Good performance due to private effort, foreign
assistance or sheer luck is not counted as “good policy.”
Asia is not always superior to Africa. Some African
countries (Mauritius, Rwanda, Ethiopia) practice much
better industrial policy than Vietnam or Indonesia.
How to Measure
Industrial Policy Quality?
Policy sub-components
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Industrial human resource
Domestic enterprise
development
Business climate
Power & logistics
Export promotion
Strategic FDI marketing
Industrial parks
Supporting industries & FDIlocal firm linkage
Productivity, technology &
innovation
Standards & testing
5
4
3
2
1
0
–
–
–
–
–
–
Excellent
Good
Moderate
Some
Little
Nothing or worse
Evaluating criteria
×
Common aspects
1.
Policy ownership
2.
Vision & commitment of top leader(s)
3.
Policy drafting procedure
4.
Authority & capacity of policy organizations
5.
Mindset & competency of implementing
officials
6.
Budgeting & staffing
7.
Inter-ministerial coordination
8.
Involvement of key non-official
stakeholders
9.
Monitoring & evaluating mechanisms
10. Impact on the real economy
Specific aspects for each sub-component
Evaluation Criteria for Industrial Policy Sub-components
Sub-component
Specific Aspects
Science and technology engineering universities and colleges and technical and
vocational education and training (TVET) in sufficient number that meets the
nation's industrial human needs; raising popular mindset for quality, efficiency, and
manufacturing pride.
Existence of clear goals, policy organizations, and coordination among many
Domestic enterprise ministries and policy areas; effectiveness of individual measures covering support
for management, marketing, technology, finance, IT, and networking; interlink and
development
synergy among policies.
Identification of the nation's current status, and serious effort for improvement;
transparency and reliability of laws and procedures; tax, accounting, and customs
Business climate
clearance; foreign currency and capital control; comparative business costs;
effective public-private dialogue.
Status of power supply irregularities and remedying actions; status and plans for
transport infrastructure; efficiency of port, airport, dryport, and bonded warehouse
Power and logistics
operation; export, import, and border-crossing procedure; logistic service quality
and competition; IT use.
Appropriate export targets; integrated export promotion mobilizing many measures
and ministries rather than temporary and ad hoc actions; a regular and effective
Export promotion
monitoring and problem-solving forum; support and use of policy by targeted
domestic exporting firms.
Full understanding of foreign investors' needs; effective one-stop investor service
and follow-up; appropriate incentives; selectivity proper to development stage;
Strategic FDI
quality of promotional information and presentation; actual results in project
marketing
registration and implementation.
Full understanding of investors' needs; proper division of labor between
government and private sector in designing, building, and operating industrial
Industrial parks
parks; provision of necessary infrastructure and soft support; customer
satisfaction and arrival of targeted foreign firms.
Clear recognition of importance of supporting industries and services in upgrading
Supporting industries
domestic capability; effective database, match-making, incentives, and follow-up
and FDI-local firm
measures; close interaction with targeted domestic and FDI firms; actual growth of
linkage
supporting industries.
Proper targeting of needed technology and innovation for the nation; suitable
Productivity,
promotion measures in close cooperation with the private sector without coersion;
technology, and
protection of intellectual property rights; effective research and supporting
innovation
institutions and mechanisms.
Existence of organizations, laws and regulations, and human and physical capital
for ensuring product quality, safety, environment, labor conditions, etc.; sufficient
Standards and testing
testing facilities; actual effective use of standards and testing facilities by the
private sector.
Industrial human
resource
Common aspects
The Scorecard for Ethiopia (Example)
Date: May 2015 (based on policy research 2008-2015)
Supporting
Productivity,
industries &
Standards
technology &
FDI-local firm
and testing
innovation
linkage
Industrial
human
resource
Domestic
enterprise
development
Business
climate
Power and
logistics
Export
promotion
Strategic FDI
marketing
Industrial
parks
Policy ownership
5
3
3
4
5
5
5
3
5
2
4.0
Vision & commitment of top
leader(s)
5
3
3
4
5
5
5
4
4
3
4.1
Policy drafting procedure
2
1
2
2
3
4
4
1
3
2
2.4
Authority & capacity of policy
organizations
3
2
2
3
3
4
5
2
2
2
2.8
Mindset & competency of
individual officials
3
2
1
2
4
4
4
2
3
2
2.7
Budgeting & staffing
4
2
2
4
5
5
5
1
3
2
3.3
Inter-ministerial coordination
1
1
1
3
3
3
3
2
3
1
2.1
Involvement of key non-official
stakeholders
2
2
2
3
3
3
3
2
3
2
2.5
monitoring & evaluating
mechanisms
3
1
1
2
5
5
5
1
3
2
2.8
Impact on real economy
2
2
0
4
3
5
5
2
3
2
2.8
AVERAGE
3.0
1.9
1.7
3.1
3.9
4.3
4.4
2.0
3.2
2.0
3.0
GRADE
B
D
D
B
B
A
A
B
B
C
B
Remark
TVET,
engineering
universities
Fragmented
Limited action
to improve
business
climate
Infrastructure
still deficient
but improving
Good policy;
execution
needs more
improvement
Main policy
focus; good
results
Main policy
focus
Policy will
exists; further
development
required
AVERAGE
Strong political TIDI, LIDI, etc.;
will; kaizen &
but generally
national
undermovement
developed
Notes:
- Evaluation: 0 (non-existent or worse), 1 (little), 2 (some), 3 (moderate), 4 (good), 5 (excellent).
- Evaluation of policy prepared and implemented by government only; results obtained by private effort, international cooperation or external conditions are not included.
- Letter grades: A+ (4.5 or above), A ( <4.5), B (<4), C (<3), D (<2), F (<1).
Quality of Industrial Policy vs.
Income Performance
(preliminary results as of May 2015)
Industrial
human
resource
Domestic
Business
enterprise
climate
development
Power and
logistics
Supporting
Productivity,
Export
Strategic FDI Industrial industries &
Standards
technology &
AVERAGE
promotion
marketing
parks
FDI-local firm
and testing
innovation
linkage
Grade
Per capita
income (WB,
2013, USD)
Singapore
5
4
5
5
4
5
5
4
5
5
4.7
A+
$55,183
Japan
5
5
4
5
4
3
3
…
4
5
4.2
A
$46,330
Korea
5
4
4
5
5
3
4
…
4
5
4.3
A
$25,977
Taiwan
5
5
5
5
3
4
5
…
5
5
4.7
A+
$22,597
Malaysia
3
4
4
5
4
5
4
1
4
4
3.8
B
$10,538
Mauritius
4
4
4
4
4
5
4
3
4
3
3.9
B
$9,478
Thailand
3
2
4
4
3
4
4
4
2
4
3.4
B
$5,779
Indonesia
2
2
2
2
2
3
1
1
1
2
1.8
D
$3,475
1.5
1.8
2
2.8
1.6
1.7
2.2
1.5
1.4
1.5
1.8
D
$1,910
India
1
1
1
2
3
1
2
1
1
1
1.4
D
$1,498
Rwanda
2
2
4
2
2
4
4
2
2
1
2.5
C
$639
Ethiopia
3
1.9
1.7
3.1
3.9
4.3
4.4
2
3.2
2
3.0
B
$505
Vietnam
(Cambodia & Mozambique to be added soon.)
Some Observations




Governments are not created equal. There is a huge
gap in industrial policy quality from excellent to poor
among governments.
Income level and policy quality are positively correlated.
This suggests, but does not prove, causality.
Within each country, policy quality is similar across
different measures. If one policy is bad, others are
likely to be also bad. There is a common policy culture
that permeates entire government.
Rich resource endowment often impedes policy
improvement, vindicating the curse of natural resources.
Proactive Industrial Policy



Even under globalization, industrial policy is both necessary and
possible. In fact, many countries already practice industrial policies
consistent with WTO and FTAs.
But new policy must be different from old ones: planning, laissez-faire,
infant-industry promotion (Korea), FDI-led industrialization with slow
integration (ASEAN4).
Proactive industrial policy must satisfy the following:
1. Promotion of markets and integration
2. A strong state to guide the private sector
3. Having sufficient policy tools for catching up
4. Dynamic capacity building of both government and private sector through
concrete actions & projects
5. Internalization of skills & technology
6. Effective public-private partnership
7. Deep industrial knowledge shared by government and businesses
Policy Learning




International best policy practices (and failures) must be collected and
compared systematically. East Asia abounds in good examples, but we
can also learn from other regions.
Using them as references and building blocks, government must
acquire general capability to create a policy most suitable for a
particular country, time and sector.
Do not copy other countries uncritically, or reject their experiences as
irrelevant. Learning (knowledge collection) and thinking (adaptation to
your country) must be combined.
Learning steps:




Collect and analyze policy documents of other countries
Seminars & advice by invited foreign officials and experts
Policy missions to foreign country governments (and write reports)
Discuss how foreign examples can be used in formulating home policies
Policy Dialogue with Foreign
Experts & Officials





Developing countries can learn by self-study, but a better way is to
have a private tutor who understands your country as well as has
broad & pragmatic knowledge of international best policy practices.
However, not many foreign experts can teach nitty-gritty of industrial
policy making; most can preach general ideas, cases & history only.
Japan has conducted industrial policy dialogue with many developing
countries. The Japanese method is case-by-case and flexible, unlike
Korea’s more systematic (but mechanical) approach.
Long-term interest, commitment & mutual trust, substance over
formality, and mobilization of ODA to realize some of the discussed
issues (not just talk) are key to success.
The GRIPS Development Forum & JICA have conducted Industrial
Policy Dialogue with Ethiopia since 2009 (Phase 2 ends this year).
Japan’s Industrial Policy Dialogue
Country
Period
Head/key players
Purpose and content
Argentina
1985-1987
1994-1996
(folow up)
Saburo Okita (former foreign
minister)
Comperehesive study on agriculture and livestock farming, industry,
transport and export promotion
Thailand
1999
Shiro M izutani (former M ITI
official)
Study on the master plan for SM E promotion policy
Vietnam
1995-2001
Shigeru Ishikawa (professor)
Large-scale joint study on macroeconomy, industry, agriculture,
enterprise reform, crisis management, etc.
Vietnam
2003-current
Indonesia
2000
Japanese embassy, JICA, JETRO, Bilateral joint initiative to improve business environment and
JBIC
strengthen competitiveness through 2-year cycle of action plans
Shujiro Urata (professor)
Policy recommendation for SM E promotion
Policy support for macroeconomic management, financial sector
reform, SM E promotion, private investment promotion,
democratization, decentralization and human resource development
Indonesia
2002-2004
Takashi Shiraishi and Shinji
Asanuma (professors)
Laos
2000-2005
Yonosuke Hara (professor)
Study on macroeconomy, finance, state enterprise, FDI and poverty
reduction, etc.
Myanmar
1999-2002
Konosuke Odaka (professor)
Study on agriculture, rural development, industry, trade, finance, ITC,
etc.
Mongolia
1998-2001
Hiroshi Ueno and Hideo
Hashimoto (World Bank
economists and professors)
Study on the support for economic transition and development
Vietnam
2008-2010
Japanese embassy, JICA, JETRO, Produce supporting industry development action plan for joint
businesses, GRIPS/VDF
implementation
Ethiopia
2009-
Vietnam
2011-2013
GRIPS Development Forum and
JICA
Kaizen, basic metals & engineering, productivity movement, policy
procedure & organization, export promotion, plan documents, etc.
Japanese embassy, JICA, JETRO, Select and intensively promote a small number of indutrial sectors;
M ETI, GRIPS/VDF
draft and implement detailed action plans
Ethiopia-Japan Policy Dialogue & Kaizen
2008
2009
2010
2011
2013
2012
2014
2015
2016
PM Hailemariam
PM Meles
Industrial Policy Dialogue
Preparation
Africa Taskforce
Meeting Jul. 2008
JICA’s
Industrial
Cooperation
Phase 1 (2009-11)
Official launch
Jun. 2009
Phase 2 (2012-15)
Final session
May 2011
TICAD V
Start
Jan. 2012
PM Abe visit
Last session
Aug. 2015
Malaysia mission
Kaizen Phase 1
Kaizen Phase 3
(30 pilot companies)
(Advanced level)
Kaizen Phase 2
（Institution & human resource)
Metal industry
survey
Champion
Products
Branding &
promotion
(With Germany)
Note: Black boxes indicate three-level policy dialogue in Addis Ababa (PM, ministers, operational level).
With Former PM
Meles at PM Office
High Level Forum (Aug. 2014)
Lecture at Civil Service University
Letter to Prime Minister Hailemariam
of Ethiopia (March 2015, 18 pages)
GRIPS advice on next five-year plan (GTP2) 2016-2020
1. Enhancing people & firms must be the core objective
2. How to strengthen MOI over time
3. Kaizen as the principal productivity tool
4. Mobilizing multiple support measures to start “handholding” for
selected SMEs during GTP2
5. Business climate is poor; Ethiopia needs an improvement plan
6. Our view on promoting heavy industries
7. FDI-local firm linkage formation strategy must be added
8. Concepts of “quality manufacturing” & “quality infrastructure”
9. How to draft the Productivity & Competitiveness Chapter (new)
10. How to draft the Industry Chapter
Policy Learning:
What Needs to Be Learned?
Basics
 Policy
 Policy
 Policy
 Policy
content
procedure
organization
documentation
More advanced
 National leadership
 National movement for mindset change
 Developmental state (politics & development)
 Exit to an advanced society
Standard Policy Making Procedure
(Five Necessary Conditions)
5. A secretariat with sufficient authority and
responsibility to coordinate the entire process
Top leader
1. Vision
2. Consensus building
3. Documentation
Brainstorming
Studies
& surveys
Set broad
goals &
direction
Drafting
work
Comments
& revisions
(Drafting may
be outsourced)
Stakeholder
consultation
4. Substantive
stakeholder participation
Ministries
＆agencies
Businesses
Academics &
consultants
Regions &
localities
Finalize
& approve
Taiwan: Statute
for Industrial
Innovation, 2010
Brainstorming;
agreeing on goals
& directions
Task force
under
Ministry of
Economic Affairs
Minister providing
vision & key ideas
The 3-year process was
managed by Chung-hua
Institution for Economic
Research (a think tank
winning competitive bidding).
Stakeholder
consultations
Documentation
Private sector
hearings
with six sectoral
business
associations
Interministerial
meetings
Drafting
by MoEA
official with
lawyer’s
help for
wording
Further
revision &
approval
by National
Assembly
with MoEA chairing
Dissemination
(“Island Tour”)
Thailand:
Automotive
Industry Master
Plan 2007-2011
Brainstorming;
agreeing on goals
& directions
“CEO Forum”
FDI & local firms
Exporters
MoI, MoST, MoEdu
Professors’ team
(Chulalornkorn Univ)
Business
Gov’t
Experts
(Informal)
The whole process (1
year) is managed by
Thailand Automotive
Institute (TAI) 
Set up formal
committee for
drafting M/P
M/P Steering
Committee
Organized by MOI
Subcommittees
study identified
issues
Human resource
Productivity
M/P
Drafting
By TAI staff
Businesses
Officials
Experts
Business
Gov’t
Experts
(Formal)
Marketing
Engineering
Investment
& linkage
Comment &
dissemination
Implementation
Vietnam: Traditional Policy Drafting Process
Prime
Minister
Review for
approval
Order
Submit
Drafting
Team
Minister
Interministerial
review
Submit
MPI & other
Ministries
Data
Internal
review
MPI & other
Ministries
Government
Appeal letter to
Prime Minister when
problems arise
Contact
Ministry when
necessary
Interviews,
symposiums
(sometimes)
Technical
assistance
(sometimes)
International
experts
Business Community
No permanent channel for continuous policy dialogue
(case-by-case, temporary, ad hoc)
Alternative Policy Organizations
Who will draft and execute policies, and how? The
following approaches are not mutually exclusive;
some countries use more than one.
 Technocrat group directly under PM or President
 National Councils or Committees
 Super-ministry
 Coordination ministry above line ministries
 Sector/issue-specific institute acting as a hub
 Strong leader without institutionalization
Technocrat Group Approach
- Elite technocrat group
with full planning authority
given by top leader
- Members are selected
officials, business leaders
& experts with good
education & experience
Korea – Econ. Planning Board
Malaysia – Econ. Planning Unit
Thailand – NESDB
Taiwan – Kuomintang Elites
Indonesia – “Berkeley Mafia”
Chile – “Chicago Boys”
President or
Prime Minister
Direction, full
authority for
policy making
Faithful
execution and
reporting
Technocrat Group
(Policy Maker)
Policy,
guidance and
monitoring
Businesses
Academics
Experts
Faithful
execution
and reporting
Ministries (Policy Implementers)
Korea in the 1960s-70s: Economic Planning Board under President
Direct presidential control
over economic policy
President
(Blue House)
Economic
Secretariat
Gov’t-business meetings
- Export promotion
- Economic briefs
- HCI drive, etc.
State Council
Economic Minister’s
Council
Very close gov’t-business
relations
Performance-based rewards &
penalties
Chaired by
Deputy PM
Korea Development
Institute
Economic Planning Board
Policy
analyses
Headed by
Deputy PM
Min. of
Commerce
& Industry
Economic ministries and agencies
Businesses
Super ministry charged with:
- Development planning
- Public investment planning
- Budget
- Monitoring
- Aid management
Banks
National Council/Committee
Approach
PM or President
Chair, give mandate
Businesses
Academics
Experts
National Council
or Committee
Plan
Support
working groups or task forces
for specific issues and sectors
Ministries and agencies
Implement
Singapore: New Productivity Drive
Economic
Strategies
Committee:
Report
Chaired by Deputy PM
Members from ministries/agencies,
business, unions
Joint secretariat: MTI, MOM
(ministers)
National Productivity and
Continuing Education Council (NPCEC)
Review & submit
Oversight
Review & approval
Led by MTI, MOM (PS level)
Inter-agency coordination
Working Committee for Productivity and
Continuing Education (WCPCE)
Sectoral “Productivity Roadmap”
for the next 10 years
Draft & propose
Financial Incentives
Scrutiny
National
Productivity
Fund
Productivity Skills Dvt. Fund
& Innovation Lifelong Learning
Credit
E.F.
Sector working groups (12 priority sectors)
Construction
BCA
Unions
Industry
Electronics
EDB
Unions
Industry
Cross-cutting issues
Low wage workers
Research & benchmarking
Infocomm and logistics
Precision Eng. Transport Eng. General Mfg.
EDB
EDB
SPRING
Unions
Unions
Unions
Industry
Industry
Industry
F&B
SPRING
Unions
Industry
Retails
SPRING
Unions
Industry
My Proposal for Vietnamese Government
Prime Minister
Direct, give mandate
Plan
National Competitiveness Council
Commission
studies, reports
Chaired by PM (or DPM)
Secretariat: Government Office
Members: Heads of concerned
ministries
Support, report, draft
Working groups for specific issues or sectors
SMEs
Supporting
industries
Clusters
TVET
Higher Educ
Secretariat:
MPI
Secretariat:
MOIT
Secretariat:
MOIT
Secretariat:
MOLISA
Secretariat:
MOET
Ministries,
businesses,
experts
Ministries,
businesses,
experts
Ministries,
businesses,
experts
Ministries,
businesses,
experts
Ministries,
businesses,
experts
Ministries and agencies
Implement
Super Ministry Approach: Japan’s Ministry of
International Trade and Industry, 1960s
MITI
Minister
Politically appointed VM
Administrative VM
Deputy VMs
Special assistants
Main Bureau
Minister’s Secretariat
(incl. Research & Statistics)
Int’l Trade Policy Bureau
Int’l Trade Admin. Bureau
Industrial Policy Bureau
Industrial Location &
Environment Protection Bureau
Basic Industries Bureau
Machinery & Information Industries
Bureau
Consumer Goods Industries Bureau
Deliberation Councils
Industrial Structure
Export Insurance
Textile
Petroleum
Electrical Works
.........
Attached Organizations
and External Bureaus
Agency of National Resources
& Energy
Patent Office
SME Enterprise Agency
Agency of Industrial Science
& Technology
Trade & Investment Training
Other
(*) Industrial Structure Council:
influential in the 60s (18 special
committees): industrial pollution,
int’l economy, consumer economy,
heavy industry, chemical industry, etc.
Int’l Trade Transaction
Industrial Location & Water
Product Safety & Household Goods Quality Indication
Aircraft & Machinery Industry
Traditional Crafts Industry
...................
Documentation




Drafting Implementation Results. Producing documents
is the means, not the end, of policy formulation.
Generally speaking, short & concise is better than long and
complex. Large documents are usually not used or referred.
Only include information and arguments necessary for the
policy actions proposed.
Drafters can be officials, consultants, academics or a mixed
team. As long as rough contents are agreed and necessary
studies have been prepared, anyone can draft policy
documents.
Action Plan Template



The following template is actually used in Vietnam-Japan
Industrialization Strategy (2011-2013).
Purpose: foster new industries under the principles of PPP,
bilateral cooperation, selectivity, and concrete action plans.
Only essential items to save time & energy; total about 5 pages.
Situation analysis (about 2 pages, essential facts only for promoting this industry)
Vision for 2020 (one sentence)
Targets (3-4 items, one phrase each)
Policy issues (3-5 items, one phrase each, policy efforts required for targets above)
Action plan (who, what, by when, success criteria in table format)
Monitoring mechanism (1-2 sentences, common for all industries)
Thailand Automotive
M/P 2007-2011
Drafting team at Thailand Automotive Institute




Vision 2011  4 Objectives  5 Strategies 
12 Action Plans
Strong coordination by Mr. Vallop of Thailand
Automotive Institute
Effective stakeholder networking – FDI, local
producers, government, donors
Process-based action mechanism – annual
budget and projects for implementing actions
(no matrix)
Thai Automotive Vision, 5 Strategies and
12 Action Plans
Vision—“Asia’s auto production base with value-added and strong parts industry”
Source: Thailand Automotive Institute, The Automotive Industry Master Plan 2007-2011 Executive Summary, p.4.
Malaysia’s Industrial Master Plan 2
(1996-2005)



453 pages (English) with the following chapters:
- Overview & analytical framework (first 2 chapters)
- Analysis & proposals for 8 indust. clusters (8 chs.)
- Directions & institutional framework (last 2 chs.)
Malaysian Institute of Economic Research (MIER)
drafted a background paper, which gave IMP2 a lucid
academic style (but not IMP3).
Possible problems: (1) sectoral coverage is too wide,
(2) method is too mechanical and uniform, (3) fullset industrial promotion is against globalization and
specialization.
Malaysia’s Cluster-based Industrial
Development and Manufacturing++
Malaysia’s IMP2 (1996-2005) aimed at
raising and broadening the value chain.
Leveling up of each
industrial cluster
-Core production
-Supporting industries
-Supporting services
-Human resources
-Logistics
-R&D