Credit Where Credit Is Due: Open Economy Industrial Policy and Export Diversification in Latin America and the Caribbean

Abstract

Do activist trade and industrial policies offer developing countries a viable alternative to either neoliberal or mercantilist development regimes? We hope to answer the question by, first, distinguishing the “open economy industrial policies” in vogue today from either their “closed economy” predecessors—i.e., import-substituting industrialization—or more orthodox approaches to development policy making; second, tracing the growth of nontraditional exports from Latin America and the Caribbean to the diffusion of more active approaches in the 1990s; and, third, accounting for activism’s apparent success in an otherwise inauspicious spatial and temporal context by identifying three distinct limits to rent-seeking in the open economy: infant exporter maturation; the costs of government support; and the reactions of foreign rivals.