Between Two Coordination Failures: Automotive Industrial Policy in China with a Comparison to Korea

For twelve years now, China has attempted to develop and to consolidate its automotive industry through an industrial policy approach closely modeled on that implemented by the Korean government in the 1970s. While the growth of the automotive industry has been impressive, government's consolidation attempt has been a failure. This article argues, and uses the example of Korea, to show that success in automotive industrial policy (AIP) requires two components. One is overcoming a coordination failure on the part of firms to invest at a socially optimal level. This is the familiar form of market failure. The other is to overcome a coordination failure on the part of firms to restrain entry into the automotive sector. The second is more costly to overcome than the first in political terms, and this asymmetric cost structure explains many developments in the automotive sector in China.

  • Authors: Yasheng Huang
  • Year: 2002
  • Organisation: Harvard Business School
  • Publisher: Routledge. Tailor and Francis Group
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