Industrial Policy: It's the process not the content

Israel exports a variety of high quality but dissimilar products to developed countries. Ricardo Hausmann highlights the need for industrial policies that address the opportunities for producing new products from existing industries.

Israeli wine industry was recently raked as "outstanding." In a review by Robert Parker, 14 wines from 40 Israeli wineries scored very well. The CEO of Carmel Wineries says that it will result in a marked increase in exports of quality Israeli wines.

According to Professor Ricardo Hausmann, countries become what they export. Therefore, in order for a country's economy to leapfrog, it has to export 'rich country' products.

Hausmann's analysis of the Israeli economy reveals that the quality of the 'rich country' products that Israel exports is extremely high and there is little room for improvement. Moreover, the products are spread over a wide range of industries.

Therefore, the variety of export industries calls for matching industrial policies:

In industries with high productivity, the government can remove obstacles, like regulation, so that firms can naturally expand into similar products.

When natural expansion to similar products is not possible, the government can coordinate the development of new industries that have a potential to export many "rich nation" products. Typical activities include developing infrastructure and guaranteeing demand until other markets are found.

For further information, see:

The product Space Conditions the Development of Nations

Doomed to Choose: Industrial Policy as a Predicament

Sources

Y. Englander, Globes, 12/31/2007