Industrial policy: Growth elixir or poison?

The debate about industrial policy occasioned by the East Asian financial c risis is the latest chapter in an ongoing discussion about the effectivenes s of selective government intervention in fostering rapid industrial growth . The crisis that began in the Republic of Korea in 1997 and the weak growt h in Japan over much of the 1990s have prompted a reexamination of the effe ctiveness government actions in the two countries that pursued sectoral sel ectivity most intensively. If indeed industrial policies were important in accelerating growth, there may be lessons for other countries still in the early stages of industrialization. Conversely, if the magnitude of the cont ribution was small, more conventional policies should be pursued unless it is assumed that governments can improve on the efforts of Japan and Korea.