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Federalism and industrial policy: competing away government failure?

Faguet, Jean-Paul ORCID: 0000-0002-7188-0098 (2013) Federalism and industrial policy: competing away government failure? In: Making growth happen: implementing policies for competitive industries, 2013-10-16 - 2013-10-17, Washington, United States.

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Industrial policy hovers in the intellectual space between market failure and government failure. Can subnational competition overcome government failure and make industrial policy more effective? The empirical evidence is limited and inconclusive. This paper analyzes the first and second-order effects of federalist reforms, and then distinguishes ‘between’ vs. ‘within’-competition. Federalism’s first-order effects are on public sector efficiency, effectiveness, and the quality of public decision-making – that is to say, government failure or success. It only affects industrial policy indirectly, through this channel. When diverse economic interests and civic groups interact through politics to reveal, debate, and trade off their competing interests, and so fashion policy, government will tend to be responsive and accountable. Where economic interests are homogeneous or civil society is inert, government failure looms. Further second-order effects of federalism include increasing the level of competition in a political system, and limiting the power of government against citizens in ways that make democracy compatible with open access regimes. Industrial policy is far more likely to succeed in this context due to greater economic participation and dynamism.

Item Type: Conference or Workshop Item (Paper)
Official URL:
Additional Information: © 2013 The Author
Divisions: International Development
Subjects: H Social Sciences > HC Economic History and Conditions
Date Deposited: 01 Nov 2013 16:50
Last Modified: 15 Sep 2023 08:31
Funders: The World Bank, Competitive Industries and Innovation Program (CIIP)

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