Industrial strategy and technological change: Theory versus reality

What are the determinants of appropriate industrial strategy under different circumstances? There is no universally accepted answer. This paper deals with two new elements in the contemporary debate, which centers around the efficacy of the neoclassically-prescribed neutral policy regime. One element is research demonstrating that market forces alone are not responsible for the purported ‘market successes’ of the East Asian NICs. With Korea as the case in point, this research is reviewed to draw some lessons about successful industrial strategy. The other element is an evolving conceptualization that puts technological change at the heart of industrialization. The underlying firm-level case-study research is surveyed and implications are derived regarding the nature as well as the extent of market failures affecting industrialization. It is argued throughout that industrial strategy should be seen as a matter of managing technological change to achieve dynamically efficient industrialization.