Should the African lion learn from the Asian tigers? A comparison of FDI-oriented industrial policy in Ethiopia, South Korea and Taiwan

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The Huajian shoe factory in the Eastern Industrial Zone in Ethiopia. Photo: UNIDO.

Ethiopia is being hailed as one of the most successful growth stories in Africa. Because of the country’s rapid economic growth, the high degree of state intervention in the economy, and the state’s focus on industrialization, people have started to compare Ethiopia to the Asian ‘tigers’ (Aglionby, 2017; Clapham, 2018; De Waal, 2013, Hauge and Chang, 2019; Oqubay, 2015) four countries in East Asia (Hong Kong, Singapore, South Korea and Taiwan) that underwent rapid industrialization and maintained exceptionally high growth rates in the post-WWII era.

However, this emerging literature on Ethiopia-Asia comparisons has not yet sufficiently addressed one of the most important aspects of Ethiopia’s industrialization strategy — the attraction of foreign direct investments (FDI) into the manufacturing sector.

The rationale of my recently published article was this gap in the literature. In it, I ask the question: Should the African lion learn from the Asian tigers with respect to FDI-oriented industrial policy? 

In short, my answer is yes. While Ethiopia’s policies are bringing about short-term economic success and showing promise for further industrialization, the state could arguably bargain harder with foreign investors, like it did in South Korea and Taiwan.Read More »

Hirschman’s Linkages: Passé in the Age of Global Production Sharing?

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How does economic development happen? After World War II, many development economists rose to prominence, such as Paul Rosenstein-Rodan (the big push), Arthur Lewis (the dual-sector model), Walter Rostow (the linear stages of growth) and Albert Hirschman (unbalanced growth and linkages). Given the continued importance of industrial policy, it is particularly worthwhile to revisit the idea of forward and backward linkages — one of the central tenets of development thinking pioneered by Hirschman.Read More »

Economic development in Palestine and beyond

Palestine-blog-image-TSuccessful economic development in Palestine will require an adequate theory of development, industrial policy, and institutional reforms.

Recently, the Palestine Economic Policy Research Institute (MAS) published a comprehensive study on Palestinian economic development. In this report, co-authored by my colleagues Heiner Flassbeck, Michael Paetz, and I, we explore possible solutions as to how Palestine could sustainably finance its deficits. Now, after the Israeli elections, Jared Kushner, the US President’s son-in-law and senior advisor, is set to announce the details of the US Peace Plan for the Israeli-Palestinian conflict. Given that the Peace Plan is expected to include a large economic component to solve the conflict, it will be interesting to see to what extent it addresses the fundamental problems we identified in our research.

Our results suggest, succinctly, that under current conditions of excessive imbalances in the external sector (trade and current account), any issuance of debt securities requires fixing these imbalances first, for which, in turn, strategic public intervention is critical. This finding may come as a surprise to most policymakers, as orthodox economic theory suggests that the most efficient ways for countries to develop is through market led (as opposed to state led) policies. Historical evidence demonstrates that none of the advanced countries followed this path in their own development, yet the idea of ‘the market’ as the most efficient development tool is still widespread. Based on this belief, Western institutions wreaked havoc in developing countries during the 1980s and 1990s, and continue to do so (although some institutions, notably the IMF, show significant progress in learning from past experiences).Read More »

Tensions in Hegemonic Stability and Global Structural Transformation

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In this article I argue that there is a fundamental tension characterizing the process of global development and structural change. Industrial policy is necessary for triggering structural change in the developing world. Yet such efforts put pressure on economic leaders to adjust structurally as well. Drawing from international relations theory, a hegemon is necessary to provide international public goods such as peace, which are critical for development to be possible in the first place. But this necessity gives the hegemon expansive powers over international institutions of economic governance; and this enables the hegemon to externalize the costs of adjustment associated with structural change in the developing world.Read More »

To be Poor in Times of the Current Financial Architecture

Late developers are nowadays confronted with the problem of having to earn foreign currency to finance structural transformation under extremely unfavourable conditions. The dependency on forex is rooted in the international financial architecture and represents a major pitfall for countries trying to catch up. However, this structural impediment to transformation is not paid much attention to by the dominant development economics.Read More »

Despite many changes in today’s modern global economy developmental states are needed more than ever

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In the fall of 2017, SPERI’s Matthew Bishop and Anthony Payne gathered essays from a group of nine development economists who produced essays on ‘Revisiting the developmental state’ (SPERI Paper No. 43). They drew upon a body of work published on the SPERI Comment blog and in other publications about the state’s appropriate role in development and the nature of a modern industrial strategy. The essays examined the current status of the notion of a ‘developmental state’ in today’s contemporary context of globalization. This article reviews the series, highlights some key takeaways, and considers some other elements that were not addressed by the essays.Read More »

Economic Development in the 21st Century: A Review

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by Ramiro Eugenio Álvarez (University of Siena) and Santiago José Gahn (Roma Tre University)

What drives economic development? What is the nature of the external constraints that developing economies face? What is the role of industrial policy and the central banks in the development process? These were the core questions that were posed in the recent webinar series on Development in the 21st Century, organized by the Economic Development working group of the Young Scholars Initiative (YSI). These four meetings were particularly oriented towards examining notions such as distribution, patterns of specialization, industrial policies and balance of payment constraints. The discussion of such phenomena is especially important in a context of deep academic divides regarding the drivers of economic development.

Following the tradition of the Latin American structuralist school, the meetings placed special emphasis on the inherent challenges of conditions associated with being in the periphery when the problem of development is faced. During the meetings, processes of economic integration that perpetuate asymmetric economic relations of the center-periphery type were examined, as well as the role played by public institutions, e.g. central banks, in the development of industrial economies.Read More »

Historicising the Aid Debate: South Korea as a Successful Aid Recipient

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‘The principal enemy is orthodoxy: to use the same recipe, administer the same therapy, to resolve the most various types of problems; never to admit complexity and try to reduce it as much as possible, while ignoring that things are always more complicated in reality.
Albert O. Hirschman (1998:110)

It’s clear from last week’s blog posts by Duncan Green that he is tired of academic critique against aid which have not been translated into concrete solutions (see here and here). However, the problem with his ‘marmite’ approach to addressing very complex problems is that it leads to reductive debates which are more symptomatic of the problem than constructive ways of finding solutions. Following Pablo Yanguas’ synthesis of research approaches I thought of taking a step back and analyzing the case of a successful aid recipient, South Korea.  I do this in hope of moving away from the ‘literature’ – which Duncan finds overbearing – as well as getting away from the linearity of the contemporary monitoring and evaluation approach used by the aid sector. Read More »