The Western Balkans – A Role for Industrial Policy

18.07.2017

Some scholars underline the need to foster industrial development in the Western Balkans. They also highlight the difficulties of such a strategy because of the lack of protectionism – which leads to a rather pessimistic assessment of economic prospects in the region.

In this short note, I recall the importance of manufacturing industries for growth and the renewal of interests for industrial policies. I also indicate that there is room left for active industrial policies in the context of liberalizing economies – what matters is not so much the label ‘industrial policy’, but the actual measures that can be implemented and may contribute to industrial development.

THE IMPORTANCE OF MANUFACTURING FOR ECONOMIC GROWTH

Nobel Prize Winner Nicholas Kaldor devoted much time analyzing economic growth, including the specific role of manufacturing industries. Thus, the first of the so-called ‘three Kaldor’s Laws’ underlines the strong linkages between GDP growth rates and the growth performances of the manufacturing sector. Considering the evidence, recent empirical findings based on 63 middle and high-income countries confirm “that output growth in the manufacturing sector is essential to increasing economic growth”. In the same study, the authors assess the second Kaldor’s Law, showing the positive links between manufacturing growth and labor productivity – in other words, the higher is manufacturing growth, the higher is labor productivity, which makes manufacturing products more competitive on international markets. These findings can help brainstorm about growth strategies in the Western Balkans, taking into account the context of transition in the region and related challenges.

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Source: BiEPAG

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