Public policy and catching up by developing countries in global industries: a simulation model

We rely on a simulation model to examine the effects of different public policies (strengthen capability building, favour firms’ learning, introduce protectionism and support the entry of new domestic firms) on the catch-up of a latecomer with respect to an incumbent country in changing and uncertain technological environments. The effects of these policies are examined first separately and then jointly, to assess possible complementarities. We reach several results. First, we confirm that capability building and firms’ learning are important drivers of catch-up. Second, we find that while entry support favours catch-up only if combined with a large technological discontinuity, protectionism has the opposite effect and favour catch-up only when no technological discontinuity opens up. Actually, in presence of a discontinuity protectionism has a deleterious effect on catch-up. Third, we find that depending on the technological conditions different policy complementarities exist and thus different policy mixes should be part of a country catch-up strategy. In our view these results add to the previous literature by qualifying the technological conditions under which public policies are effective in fostering catch-up.