The role of industrial policy is one of the contentious issues in applied economics. It is acknowledged in the literature that there exist a wide range of factors giving rise to deviations from the competitive market paradigm - sunk costs, economies of scale and scope, oligopoly, externalities and complementarities, information and
coordination failures, and incomplete markets. The existence of these factors may justify government intervention to generate a more socially beneficial outcome. Yet, disagreements are evident on two main matters. Firstly, there is no uniform view regarding the empirical importance of these theoretical effects, and on the extent and relevance of deviations from the market paradigm in various types of economies.
Secondly, arguments have been raised about the limitations on the potential role for the goverrmient to act effectively to produce a preferred outcome in the face of
deviations from the market paradigm. Some argue that such deviations are limited and are more than offset by the likelihood of government failure, so that it will be rare
for any improvement in economic activities to be achieved through industrial policies. Others argue that deviations from the market are pervasive and that in appropriate circumstances a strong and committed government can be very effective, so that there is a major role for industrial policies.
Against this background, assessments of the validity of industrial policy ultimately turn on empirical judgements rather than on theoretical differences. Economic theories, which are in many ways helpful in comprehending the
complicated world critically and systematically, are inevitably built on highly simplified assumptions. But empirical judgements must come to grips with the
diversity of real economies and industries, and of the many different types of market failure, A wide range of different policy measures and instruments have been applied
to address these market failures. Quite different levels of competence exist in different governments and agencies implementing industrial policies, and a host of exogenous factors other than the policy itself affect the overall economic outcome. Thus, forming well-founded empirical judgements and making justified assessments of the impact of policy are complex tasks.
This empirical challenge, and in particular that of carrying out empirical studies while incorporating this diversity, is central to assessing the effectiveness of
industrial policies. A central theme of this thesis is that this diversity - in deviations from the market paradigm, in instruments, in national and industry conditions, in the
competency of agencies and officials and in the factors affecting economic outcomes - must be fully taken into account in any assessment of the effectiveness of industrial
policies.