Industrial policies pursued in many developing countries in the 1950s-1970s largely failed, while the industrial policies of the Asian Miracles succeeded. The authors of this paper argue that a key factor of success is industrial policy with export orientation in contrast to import substitution. Exporting encouraged competition, economies of scale, innovation, and local integration and provided market signals to policy-makers.

Even in a large market such as India, import substitution policies in the automotive industry failed because of micromanagement and misaligned incentives. The authors also analyse the risk tradeoffs involved in various industrial policy strategies and their implications on the twenty-first century industrial policies. While state interventions may be needed to develop some new capabilities and industries, trade protectionism is neither a necessary nor a sufficient tool and will most likely be counterproductive.