| Abstract: | This paper focuses on policies facilitating firm adjustmentto globalization. We briefly review the effects of trade andinvestment liberalization on firms, focusing on within-industryeffects. We postulate that governments' role in supporting theprocess is to: (i) ensure that firms face the 'right' incentivesto adjust, and (ii) intervene in areas where market failuresare present. The main message of the paper is that, while manypolicies could be adopted, they need to be carefully designedand implemented in a stable macroeconomic environment. An institutionalinfrastructure that supports the functioning of modern marketsis most important. Pro-active support policies of whatever stripeshould be subject to cost–benefit analysis, based on theexistence of an identified market failure and monitored forperformance and cost effectiveness. Transparency and accountabilityare critical in ensuring that interventions accomplish theirintended objectives rather than being vehicles for rent seeking. |
