Industrial Policy in Developing Economies: Developing dynamic comparative advantage in the South African automobile sector

Mainstream economics and the Washington Consensus caution against industrial policies that target sectors, firms and regions. At the most they favour cross-sectoral policies which address generalized market failures. This paper analyses the success of an industry-specific policy, South Africa's Motor Industry Development Programme. It documents significant learning processes and shows the impact of the sector's growth on macroeconomic performance. It also addresses the 'costs' of industrial policy and shows how well-designed scale-enhancing selective policies can provide domestic consumers with global-quality products at global-price levels, without subsidy from the exchequer. The conclusion addresses the relevance of such selective policies to other developing economies, arguing the case for intelligent and appropriately crafted industrial policy.