How should industrial policy be designed in developing countries? Should industrial policy be targeted to a few sectors or be more broad based and therefore more neutral? Our theoretical analysis demonstrates that access to foreign markets is key to answering this question. We show that in a...

In this paper, we study the impact of government's budget constraint on the optimal industrial policy in industries with increasing returns to scale. We show that privatization is preferred to regulation for intermediate values of the shadow cost of public funds (i.e., the Lagrange multiplier of...

How should industrial policy be designed in developing countries? Should industrial policy be targeted to a few sectors or be more broad based and therefore more neutral? Our theoretical analysis demonstrates that access to foreign markets is key to answering this question. We show that in a...