Question

It may be argued that Japan's explicit promotion of its microchip industry was an excellent example of successful industrial policy. What criteria would you apply to determine whether such a policy is or is not successful? Judging from your own stated criteria, was Japan's exercise successful? Why or why not? What information would a government require in order to increase the probability that its industrial policy would promote long term self-generated economic growth?

Answer 1

Countries generally use export subsidies to develop their particular industry especially the one in which they feel they have a comparative advantage. The case of Japan is no different because it also used subsidies to its newly developed microchip industry which was not being developed anywhere else in the world. Any particular industrial policy is a successful when the industrial growth is increased and the industry overall becomes a mature one as a result of trade and competition.
Another necessary condition for the industrial policy to be successful is that the industry is able to generate profits in the area in which the country has a comparative advantage. Japan experienced growth of its microchip industry so the first condition was fulfilled but the latter condition was not because other countries in the world started using microchip as a commodity that dramatically reduced its price and increased competition so that the venture remained a low profit one. This implies that the government must have sufficient information about the Industry that it is going to increase the profit of the sector in which the country has a comparative advantage.