Industrial policy in the era of global value chains: Towards a developmentalist framework drawing on the industrialisation experiences of South Korea and Taiwan

• Author: Jostein Hauge
• Published date: 01 August 2020
• DOI: http://doi.org/10.1111/twec.12922
• Date: 01 August 2020

2070

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World Econ. 2020;43:2070–2092.

wileyonlinelibrary.com/journal/twec

Received: 18 February 2019

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Revised: 2 December 2019

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Accepted: 10 January 2020

DOI: 10.1111/twec.12922

ORIGINAL ARTICLE

Industrial policy in the era of global value chains:

Towards a developmentalist framework drawing on

the industrialisation experiences of South Korea and

Taiwan

JosteinHauge

Institute for Manufacturing, University of Cambridge, Cambridge, UK

KEYWORDS

East Asia, global value chains, industrial policy

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INTRODUCTION: THE “GVC PERSPECTIVE” AND THE

“DEVELOPMENTALIST PERSPECTIVE”

Since the early 1990s, a globalisation of production has taken place, driven by falling transport costs,

advances in information and communication technology, and lower trade and investment barriers.

From 1990 to 2017, the world's trade dependence ratio1 increased from 19.5% to 28.9% (see Figure 1

for more details on trends in world trade), and world inflows of foreign direct investment (FDI) as

share of world GDP increased from 0.9% to 2.8% (World Development Indicators, 2019). The increase

in FDI inflows has mostly taken place in developing countries,2 whose share of world FDI inflows

surged from 17% to 46% between 1990 and 2017 (see Figure 2, which depicts the trend in absolute

numbers as well). This growth in international trade and offshoring is underpinned especially by the

fragmentation of production processes and the dispersion of tasks and activities within them. This has

led to complex andborderless business networks and production systems, popularly referred to as

global value chains (GVCs).

1 This is the average of imports and exports of goods and services, as share of GDP.

2 The term “developing countries” refers to those countries that face the challenge of late industrialisation (a concept

introduced by Alice Amsden), that is those countries that face the challenge of catching up to the global technological

frontier. The terms “developing countries,” “catch-up economies” and “late industrialisers” will be used somewhat

interchangeably in this paper, but they essentially carry the same meaning. The important note to make is that this paper

focuses on industrial policy in developing countries, as opposed to developed countries, as developing countries participate in

GVCs and attract foreign investments in different ways and for different purposes than developed countries.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction

in any medium, provided the original work is properly cited.

© 2020 The Authors. The World Economy published by John Wiley & Sons Ltd

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HAUGE

The expansion of GVCs has invigorated debates on industrial policy.3 In particular, scholars that

study development and industrialisation issues through the framework of GVCs have in recent years

started to show a keen interest in if and how industrial policy in developing countries—specifically

those industrial policies that are oriented towards GVC participation and international trade—has to

change in this era of GVC expansion.4

Many of these scholars argue for a new way of thinking about and formulating industrial policy.

They question whether “traditional” industrial policies, like those implemented by the Asian “ti-

gers,”5 can serve as a useful inspiration for today's developing countries. Milberg, Jiang, and Gereffi

(2014, p.152) state that:

Twentieth-century debates over the merits of industrial policy as a strategy for economic

development occurred prior to the spread of these complex international production net-

works. Industrial policy viewed through the lens of GVCs will thus differ from traditional

3 This paper will stick to a definition of industrial policy as detailed in Chang, Hauge, and Irfan (2016, 26), which is, “A

policy that deliberately favours particular industries—or even firms—over others, against market signals, usually to enhance

efficiency and to promote productivity growth for the targeted industries as well as for the whole economy.” The “whole

economy” is an important part of the definition, as it implies that this paper adopts a broad understanding of industrial policy.

4 The most important publications are Baldwin (2011), Gereffi (2014a), Gereffi and Sturgeon (2013) and Milberg et al.

(2014). International organisations are also increasingly devoting attention to the topic, such as the International Labour

Organisation (ILO), the Organisation for Economic Cooperation and Development (OECD), the United Nations Conference

on Trade and Development (UNCTAD), the United Nations Development Programme (UNDP), the United Nations Industrial

Development Organisation (UNIDO), the World Bank and the World Trade Organisation (WTO). See Milberg et al. (2014)

for an overview of publications from these international organisations that concern the topic.

5 Most commonly referring to South Korea and Taiwan, but also includes Hong Kong and Singapore.

FIGURE 1 World exports and imports, 1990–2017

Data source: World Development Indicators (2019). [Colour figure can be viewed at wileyonlinelibrary.com]

24

Exports

Exports

Imports

Imports

Trade dependence ratio

22

20

18

16

14

Current US$ (in trillion)

12

10

8

6

4

1990 1997 2004

Year

2011 2017

32

30

28

26

% of world GDP

24

22

20

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