Industrial Policy for a Green Economy
Johannes Schwarzer
Email: [email protected]
Twitter: @schwayo
WTO Public Forum 2015
Motivation
• Failure to develop sound industrial bases
has sparked renewed interest in IP
• Environmental stress mandates the
promotion of green industry
• Decades of experience with traditional IP
should provide lessons learned
• To what extent do these lessons apply to
green IP?
• National economic welfare perspective
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Definitions
•
Industrial Policy (IP):
– A set of policies that selectively favors the development of certain
industries over others
•
Green Industrial Policy (GIP):
– Extension to those industries with a relatively less harmful effect on the
environment
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Economic Rationale for (G)IP
•
Optimal production patterns and comparative advantage
•
Distorted or incomplete markets warrant government intervention
•
In IP context (non-exhaustive):
– Marshallian externalities
– Coordination Failures
– Self-Discovery and Diversification
– Credit Market Imperfections
– Learning-By-Doing
– Environmental Externalities
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IP Impact Evaluation Challenges
•
Attribution problem: eg subsidies and TFP
•
Opportunity costs, even if attribution solved
•
Benchmark for success: What’s the objective?
•
–
Economy-wide vs. sectoral
–
Mill (1848): ultimate viability of sector
–
Bastable (1904): cumulative net benefits > costs
Data problems  focus on trade related IP
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Lessons learned
•
Transparency, periodic review, performance criteria
•
Trade Protection: Theory vs. Practice
•
•
–
Openness: Trade volumes vs. trade measures
–
Don’t tax input goods!
–
GVCs
Trade Promotion:
–
Evidence for causal link to growth
–
Export subsidies may be coupled with protection
–
“competition-friendly”
FDI:
–
Most flows in growing sectors (reverse causality?)
–
Foreign equity raises productivity (joint-venture)
–
No horizontal, but vertical spillovers (LCR’s)
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Which sectors to promote?
Comparative Advantage
vs
Product Space
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Implications for Green Industrial Policy
1.
Scale of intervention: development of industry is endogenous to policy, in
terms of market creation (e.g. future emissions ceilings). At the same time,
creation of future market depends on current investment level (e.g. carbon
taxes)
2.
Depending on the nature of the market failure, industrial policies might be
required for as long as market-based policies cannot be implemented.
3.
The absence of a competitive market makes performance-based
evaluation of GIP much harder in practice. Immaturity of the sector and
uncoordinated GIPs worldwide contribute to various distortions, such that
export data and world prices are less useful indicators than they were for
rapidly industrializing Asian nations.
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