Publication

This paper draws on the new trade theory framework, which emerged in the early 1980s, to explain how industrial policy could lead to an increase in national income in imperfect markets. The author outlines how industrial policy can work to increase national income by helping domestic firms gain market power abroad, or by encouraging the establishment of industries with positive externalities for society. Models from new economic geography and the more recent 'new' trade theory with heterogeneous firms are also discussed.