The East Asian Industrial Policy Experience: Implications for the Middle East

Working Paper
December 2005

Marcus NolandIndustrial policy was not the key to the rapid growth that Japan, South Korea, and Taiwan experienced in the second half of the 20th century. Benefits from the promotion of specific sectors and activities were modest at best, and they came with two unintended side effects: encouragement of corruption and discouragement of skill acquisition by the financial system. The East Asian experience reflected exceptional circumstances not likely to be reproduced, and the adoption of similar policies elsewhere today will not generate the past results the East Asians attained. In addition to the historically specific and irreproducible aspects of the East Asian experience, the tightened rules embodied in today's global system impede the implementation of policies applied by the East Asians a generation ago. So does the East Asian experience have any positive lessons for the Middle East? Yes, the fundamental message does: Improvements in the macroeconomic, microeconomic, and institutional dimensions of the economic environment, including the retention of highly skilled citizens and, ultimately, reversal of the brain drain, are more likely to accelerate growth and enhance welfare than "picking winner" strategies.