Industrial Policy after the East Asian Crisis: From Outward Orientation to New Internal Capabilities?

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about developmnent issues. An objective of the series is to get the findinigs out quickly, even if the presentations are less than fully polished. The papers carry the namnes of the authors and should be cited accordinzgly. The finzdings, interpretations, and conclusions expressed in this paper are entirely those of the authors. 'They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent.

The Impact of Institutional Reforms on Characteristics and Survival of Foreign Subsidiaries in Emerging Economies*

“…These three dimensions are key factors affecting overall environmental uncertainty (Lawrence and Lorsch, 1967). In particular, a greater degree of complexity and volatility exacerbates uncertainty in the institutional environment (Mody, 1999;Tan and Litschert 1994). There are two views of the reform process: the Washington Consensus and the evolutionary-institutionalist perspective.…”

“…However, as previously evident in some reform processes of Eastern European countries and Russia (Newman, 2000), drastic policy reforms may create immense problems. The abrupt policy reforms may create chaos that makes it complicated for foreign firms to interpret policy signals coming to them (Mody, 1999;Peng, 2003). Such policy reforms may even lead foreign firms to suffer 'cosmoquakes' -severe difficulty in sense making that can lead to organizational paralysis or erratic responses (Weick, 1993).…”

“…In the uncertain post-crisis environment, political tension and backlash however may result in policy reversals (Peng, 2003). Depending on the outcomes of policy reforms and the recovery progress of local economies, the abrupt policy reforms in favour of foreign investors may be flipped again, possibly damaging the operations of newly created subsidiaries in the future (Mody, 1999). Furthermore, nationwide demonstrations and strikes during times of crisis may also contribute to institutional instability.…”

Indonesia's Crisis: Implications for the Region

“…Two trends can be identified. One is to move from outward orientation to new internal capabilities that would see the emergence of competition policy to replace the role of activist government (Mody 1999). This creates an enormous challenge to governments to develop sophisticated new skills in public administration in order to be able to deal with the more complex mandate that the shift implies.…”

Economic Crisis and Technological Trajectories: Hard Disk Drive Production in Southeast Asia

“…These goals require policy instruments focused on areas typically plagued by market failures: human resource development, technology diffusion, supplier linkages, and advanced infrastructure (Mody 1998;Peters 1998). Such instruments involve a combination of sectorspecific and sector-neutral policies (Gore 2000: 797).…”